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- Title
Economic policy uncertainty and firm tax avoidance.
- Authors
Nguyen, My; Nguyen, Justin Hung
- Abstract
We find strong evidence that firms reduce cash effective tax rate when economic policy uncertainty heightens. Firms also engage in more aggressive forms of tax avoidance including long‐term tax planning or shelters. Cash holdings attenuate the negative effect of policy uncertainty on cash effective tax rate, especially for financially constrained firms. The cash tax savings are retained for reinvestments rather than dividend payouts. Our findings suggest that policy uncertainty exacerbates external financing frictions, which in turn induces precautionary motives of tax avoidance.
- Subjects
UNCERTAINTY; ECONOMIC policy; TAX shelters; TAX planning; TAX rates
- Publication
Accounting & Finance, 2020, Vol 60, Issue 4, p3935
- ISSN
0810-5391
- Publication type
Article
- DOI
10.1111/acfi.12538