Strategic Reactions in Corporate Tax Planning

We find that firms’ tax planning exhibits strategic reactions: firms respond to changes in their industry-competitors’ tax planning by changing their own tax planning in the same direction. We document evidence of these strategic reactions in two distinct research settings that entail an exogenous increase and decrease in competitors’ tax planning. We also find evidence that strategic reactions stem from concerns about appearing more tax aggressive than industry competitors, some evidence that they stem from firms learning from the tax planning of their industry competitors, and no consistent evidence that they stem from leader-follower dynamics.

Keywords: Corporate Income Tax; Tax Planning; Industry Competition; Strategic Interaction; Tax Havens; Difference-In-Differences; Partially-Overlapping Groups; Reflection Problem

JEL Classification: H25; H26

Suggested Citation: Suggested Citation

Armstrong, Chris S. and Glaeser, Stephen and Kepler, John, Strategic Reactions in Corporate Tax Planning (March 8, 2019). Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2889145 or http://dx.doi.org/10.2139/ssrn.2889145