Examining Tax Strategy Choice

Neuman, Stevanie S. 2021. Examining Tax Strategy Choice. Journal of the American Taxation Association. Available at: https://doi.org/10.2308/JATA-19-035

Posted: 21 Feb 2016 Last revised: 1 Oct 2021

See all articles by Stevanie S. Neuman

Stevanie S. Neuman

University of Missouri at Columbia - School of Accountancy

Date Written: August 11, 2021

Abstract

Most recent tax research examines the level of firms’ effective tax rates (ETRs), focusing on tax avoidance. However, theoretical work and research on book-tax tradeoffs and reputational costs indicate some firms have other tax planning goals. Moreover, anecdotal evidence suggests consistent tax outcomes are important; thus, the volatility of ETRs may be an alternative aspect of firms’ tax planning. In this study, I find some firms utilize a second, distinct approach to tax strategy – maintaining low ETR volatility – by documenting systematic differences in firm characteristics associated with each tax strategy approach and a predictable shift in characteristics when firms change tax strategies. In combination, these results identify at least two distinct approaches to tax strategy. I also find firms exhibiting low ETR volatility earn significantly higher median buy-and-hold returns than firms exhibiting low ETR levels, consistent with benefits to alternative tax strategies.

Keywords: Tax Planning Strategies, Tax Volatility, Tax Minimization, Firm Value

JEL Classification: M40, M41, M49

Suggested Citation

Neuman, Stevanie S., Examining Tax Strategy Choice (August 11, 2021). Neuman, Stevanie S. 2021. Examining Tax Strategy Choice. Journal of the American Taxation Association. Available at: https://doi.org/10.2308/JATA-19-035, Available at SSRN: https://ssrn.com/abstract=2735107 or http://dx.doi.org/10.2139/ssrn.2735107

Stevanie S. Neuman (Contact Author)

University of Missouri at Columbia - School of Accountancy ( email )

College of Business
Columbia, MO 65211
United States

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