The Effect of High-Quality Information Technology on Corporate Tax Avoidance and Tax Risk

2016 ◽  
Vol 31 (2) ◽  
pp. 83-106 ◽  
Author(s):  
Russ Hamilton ◽  
James Stekelberg
Keyword(s):  
Information Technology ◽  
Tax Avoidance ◽  
Quality Information ◽  
Tax Rates ◽  
Corporate Tax ◽  
High Quality ◽  
Effective Tax Rates ◽  
Mediation Analyses ◽  
It Systems ◽  
High Quality Information

ABSTRACT We examine the effect of high-quality information technology (IT) on corporate tax outcomes. Using a measure of IT quality constructed from rankings in InformationWeek magazine, we find that firms with high-quality IT are able to achieve both lower and less volatile cash effective tax rates than are other firms. These results suggest that firms with high-quality IT are able to avoid more taxes while simultaneously incurring less tax risk compared to firms with lesser IT systems. We also perform mediation analyses to investigate the channels through which high-quality IT enables effective tax planning. Results of these tests suggest that the most important driver of our findings is timely, reliable information facilitated by high-quality IT. Our study contributes to both the IT and tax literatures by identifying and quantifying the returns to investments in IT in terms of more favorable corporate tax outcomes.

Do IRS Audits Deter Corporate Tax Avoidance?

2012 ◽  
Vol 87 (5) ◽  
pp. 1603-1639 ◽  
Author(s):  
Jeffrey L. Hoopes ◽  
Devan Mescall ◽  
Jeffrey A. Pittman
Keyword(s):  
Tax Avoidance ◽  
Tax Rates ◽  
Coefficient Estimates ◽  
Corporate Tax ◽  
Effective Tax Rates ◽  
Tax Enforcement ◽  
Public Firms ◽  
Large Samples ◽  
Percentage Points

ABSTRACT We extend research on the determinants of corporate tax avoidance to include the role of Internal Revenue Service (IRS) monitoring. Our evidence from large samples implies that U.S. public firms undertake less aggressive tax positions when tax enforcement is stricter. Reflecting its first-order economic impact on firms, our coefficient estimates imply that raising the probability of an IRS audit from 19 percent (the 25th percentile in our data) to 37 percent (the 75th percentile) increases their cash effective tax rates, on average, by nearly two percentage points, which amounts to a 7 percent increase in cash effective tax rates. These results are robust to controlling for firm size and time, which determine our primary proxy for IRS enforcement, in different ways; specifying several alternative dependent and test variables; and confronting potential endogeneity with instrumental variables and panel data estimations, among other techniques. JEL Classifications: M40; G34; G32; H25.

scholarly journals The Decreasing Trend in U.S. Cash Effective Tax Rates: The Role of Growth in Pre-tax Income

2020 ◽  
Author(s):  
Alexander Edwards ◽  
Adrian David Kubata ◽  
Terry Shevlin
Keyword(s):  
Convex Function ◽  
Avoidance Behavior ◽  
Tax Avoidance ◽  
Downward Trend ◽  
Tax Rates ◽  
Corporate Tax ◽  
Effective Tax Rates ◽  
Over Time ◽  
Stable Linear

We develop a linear corporate tax function where taxes paid are regressed on pre-tax income and an intercept. We show that if the intercept is positive, cash ETRs are a convex function of pre-tax income. We present large sample evidence consistent with this ETR-convexity. Thus, although firms may have stable linear tax functions (i.e., constant parameters in the linear tax model) representing stable tax avoidance behavior, ETRs can change over time because of growth in pre-tax income. Consequently, simply examining changes (or differences) in cash ETRs is nondiagnostic about whether tax avoidance has changed over time (or differs across firms). We illustrate our argument by showing that all of the observed downward trend in cash ETRs documented by Dyreng et al. (2017) can be explained by growth in pre-tax income. The wholesale concern about increased tax avoidance over time might be overstated.

High-Quality Information Technology and Capital Investment Decisions

2019 ◽  
Vol 34 (3) ◽  
pp. 1-29
Author(s):  
John L. Abernathy ◽  
Brooke Beyer ◽  
Jimmy F. Downes ◽  
Eric T. Rapley
Keyword(s):  
Information Technology ◽  
Capital Investment ◽  
Investment Decision ◽  
Investment Decisions ◽  
Data Availability ◽  
Decision Quality ◽  
Quality Information ◽  
Investment Efficiency ◽  
High Quality ◽  
High Quality Information

ABSTRACT We examine the effect of high-quality information technology (IT) on management's capital investment decisions. Evaluating capital investment decisions with contemporary investment efficiency and long-term measures of investment effectiveness, we document a positive relation between high-quality IT and capital investment decision quality. In particular, we find high-quality IT is associated with more optimal levels of investment as well as fewer future fixed asset write-downs. We also disaggregate investment efficiency and find the relation with IT quality holds for investment decisions related to capital expenditures and acquisitions, but not research and development expenditures. Overall, our results suggest managers equipped with better internal information from higher-quality IT are able to make superior capital investment decisions. Our study contributes to the literature by providing evidence of a significant determinant of capital investment decision quality and documenting a specific mechanism that mediates the indirect effect of IT quality on future performance. JEL Classifications: D83; E22; G31; M15; M41. Data Availability: We thank InformationWeek for providing annual rankings that were previously published. All other data are publicly available from regulatory filings; we obtained data from the Compustat, Execucomp, and I/B/E/S databases.

The Political Economy of Taxation: Some Evidence for Canada

1988 ◽  
Vol 16 (3) ◽  
pp. 315-329 ◽  
Author(s):  
André Blais ◽  
François Vaillancourt
Keyword(s):  
Manufacturing Industry ◽  
Tax Avoidance ◽  
Tax Rates ◽  
Corporate Tax ◽  
Effective Tax Rates ◽  
Tax Rate ◽  
Independent Variables ◽  
Methodological Problems ◽  
Canadian Manufacturing ◽  
The Relationship

The article examines the determinants of variations in the effective average tax rate among Canadian manufacturing industry. It replicates a previous study (Salomon and Siegfried, 1977) on the U.S. corporate tax that found relationships between the economic structure and tax avoidance rates. Some methodological problems in the study are identified, which raise doubts about their conclusions. It is shown that effective tax rates fluctuate substantially over time and that the results may be sensitive to the year selected for analysis. As a consequence, tax-avoidance rates are regressed against a number of independent variables in two different years: 1974 and 1979. The overall weakness of the relationship is striking. With our best measure of the tax-avoidance rate, 2 out of 12 variables are significant in 1974 and one in 1979. These findings suggests that the corporate income tax may not be as important an instrument of industrial policy as it is sometimes claimed to be.

Long-Run Corporate Tax Avoidance

2008 ◽  
Vol 83 (1) ◽  
pp. 61-82 ◽  
Author(s):  
Scott D. Dyreng ◽  
Michelle Hanlon ◽  
Edward L. Maydew
Keyword(s):  
Tax Avoidance ◽  
Tax Rates ◽  
Corporate Tax ◽  
Effective Tax Rate ◽  
Initial Examination ◽  
Cross Sectional ◽  
Effective Tax Rates ◽  
Sample Mean ◽  
Tax Rate ◽  
Long Run

We develop and describe a new measure of long-run corporate tax avoidance that is based on the ability to pay a low amount of cash taxes per dollar of pre-tax earnings over long time periods. We label this measure the “long-run cash effective tax rate.” We use the long-run cash effective tax rate to examine (1) the extent to which some firms are able to avoid taxes over periods as long as ten years, and (2) how predictive one-year tax rates are for long-run tax avoidance. In our sample of 2,077 firms, we find there is considerable cross-sectional variation in tax avoidance. For example, approximately one-fourth of our sample firms are able to maintain long-run cash effective tax rates below 20 percent, compared to a sample mean tax rate of approximately 30 percent. We also find that annual cash effective tax rates are not very good predictors of long-run cash effective tax rates and, thus, are not accurate proxies for long-run tax avoidance. While there is some evidence of persistence in annual cash effective tax rates, the persistence is asymmetric. Low annual cash effective tax rates are more persistent than are high annual cash effective tax rates. An initial examination of characteristics of firms successful at keeping their cash effective tax rates low over long periods shows that they are well spread across industries but with some clustering.

Effective Tax Rate Time Trends and its Determinants: Insight From The Corporate Taxpayer Utilising Reinvestment Allowance In Malaysia

2021 ◽  
Vol 12 (1) ◽  
pp. 46-46
Author(s):  
Fairus Halizam A. Hamzah ◽  
Nadiah Abd Hamid ◽  
Siti Noorhayati Mohamed Zawawi
Keyword(s):  
Tax Avoidance ◽  
Tax Revenue ◽  
Tax Rates ◽  
Corporate Tax ◽  
Effective Tax Rate ◽  
Effective Tax Rates ◽  
Tax Rate ◽  
Tax Incentive ◽  
Utilisation Rate ◽  
Tax Deduction

This study aims to provide evidence on the trend in corporate tax revenue from the application of time-trend analysis of effective tax rate (ETR) amongst corporate taxpayers in Malaysia who claimed reinvestment allowance (RA) over a decade between 2007 and 2016. This study chose these observation periods because the Malaysian corporate STR has been found to have gradually reduced from 27 per cent to 24 per cent between 2007 to 2016, whereby these changes somehow impacted the tax revenue. Taxpayers who used RA for tax planning pay low taxes over time, determined through tax return data. Then, the study intended to examine the relationships between certain tax attributes, namely, company's profitability (ROA), the reinvestment allowance utilisation rate (RAUTI), type of corporate taxpayers (TPP), the book-tax gap (BTG) and how they associate to the trend in ETR. Reinvestment Allowance (RA) is renowned for being a corporate tax incentive in Malaysia to encourage investments in qualified projects through a tax deduction. An incentivised firm that pays low tax may not be engaging in fraudulent management, as generally assumed. However, it could have been due to tax avoidance strategies that can be observed through reduced or lowered effective tax rate (ETR) across ten years. Keywords: Effective Tax Rates, Tax Avoidance, Reinvestment Allowance, Tax Incentive, Taxation.

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