The Influence of a Firm’s Business Strategy on its Tax Aggressiveness

48 Pages Posted: 5 Jan 2011 Last revised: 23 Aug 2013

See all articles by Danielle Higgins

Danielle Higgins

University of Connecticut - Department of Accounting

Thomas C. Omer

University of Nebraska at Lincoln - School of Accountancy

John D. Phillips

University of Connecticut - Department of Accounting

Date Written: July 28, 2013

Abstract

We examine the relation between a firm’s business and tax planning strategies. To identify firms’ business strategies we use a comprehensive measure of business strategy based on the theoretical framework of Miles and Snow (1978, 2003). Specifically, we first investigate whether a firm’s business strategy is associated with its level of tax avoidance. Next, we investigate the association between the firm’s business strategy and the extent to which it avoids tax in an aggressive manner. We find that firms following Miles and Snows’ Prospector (innovation and risk seeking) strategy avoid more taxes than both Defender firms (cost leadership and risk aversion) and firms following a more general (Analyzer) strategy. We find that Prospectors also appear to undertake more aggressive and less sustainable tax positions than Defenders. Thus, our business strategy measure appears not only to capture Prospectors’ taking advantage of tax planning opportunities that result from their innovation strategy, but also reflects their greater willingness to undertake risk and deal with uncertainty.

Keywords: tax avoidance, tax aggressiveness, business strategy, effective tax rates

JEL Classification: H25, L21, L22, M19, M41

Suggested Citation

Higgins, Danielle and Omer, Thomas C. and Phillips, John D., The Influence of a Firm’s Business Strategy on its Tax Aggressiveness (July 28, 2013). Available at SSRN: https://ssrn.com/abstract=1727592 or http://dx.doi.org/10.2139/ssrn.1727592

Danielle Higgins

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269-1063
United States
860-486-5987 (Phone)

Thomas C. Omer

University of Nebraska at Lincoln - School of Accountancy ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

John D. Phillips (Contact Author)

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269-2041
United States
860-486-2789 (Phone)
860-486-4838 (Fax)

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