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The importance of the internal information environment for tax avoidance

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  • Gallemore, John
  • Labro, Eva

Abstract

We show that firms׳ ability to avoid taxes is affected by the quality of their internal information environment, with lower effective tax rates (ETRs) for firms that have high internal information quality. The effect of internal information quality on tax avoidance is stronger for firms in which information is likely to play a more important role. For example, firms with greater coordination needs because of a dispersed geographical presence benefit more from high internal information quality. Similarly, firms operating in a more uncertain environment benefit more from the quality of their internal information in helping them to reduce ETRs. In addition, we provide evidence that high internal information quality allows firms to achieve lower ETRs without increasing the risk of their tax strategies (as measured by ETR volatility). Overall, our study contributes to the literature on tax avoidance by providing evidence that the internal information environment of the firm is important for understanding its tax avoidance outcomes.

Suggested Citation

  • Gallemore, John & Labro, Eva, 2015. "The importance of the internal information environment for tax avoidance," Journal of Accounting and Economics, Elsevier, vol. 60(1), pages 149-167.
  • Handle: RePEc:eee:jaecon:v:60:y:2015:i:1:p:149-167
    DOI: 10.1016/j.jacceco.2014.09.005
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    References listed on IDEAS

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    1. repec:eee:advacc:v:41:y:2018:i:c:p:7-24 is not listed on IDEAS
    2. van Pelt, Victor, 2019. "A dynamic view of management accounting systems," Other publications TiSEM 782413b7-2830-4e6d-bc4c-3, Tilburg University, School of Economics and Management.
    3. repec:spr:reaccs:v:22:y:2017:i:3:d:10.1007_s11142-017-9396-0 is not listed on IDEAS
    4. Blaufus, Kay & Möhlmann, Axel & Schwäbe, Alexander, 2016. "Corporate tax minimization and stock price reactions," arqus Discussion Papers in Quantitative Tax Research 204, arqus - Arbeitskreis Quantitative Steuerlehre.
    5. repec:bla:acctfi:v:57:y:2017:i:5:p:1517-1556 is not listed on IDEAS
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    7. repec:pal:jintbs:v:49:y:2018:i:5:d:10.1057_s41267-017-0143-3 is not listed on IDEAS
    8. Osswald, Benjamin, 2018. "Corporate tax planning and firms' information environment," arqus Discussion Papers in Quantitative Tax Research 236, arqus - Arbeitskreis Quantitative Steuerlehre.
    9. repec:eee:jbrese:v:79:y:2017:i:c:p:161-172 is not listed on IDEAS
    10. repec:spr:reaccs:v:23:y:2018:i:1:d:10.1007_s11142-017-9437-8 is not listed on IDEAS
    11. Dwarkasing, Mintra, 2017. "Essays on inequality and finance," Other publications TiSEM a994c9b7-140f-4f56-bc07-f, Tilburg University, School of Economics and Management.
    12. repec:spr:reaccs:v:23:y:2018:i:3:d:10.1007_s11142-018-9439-1 is not listed on IDEAS
    13. repec:eee:joacli:v:42:y:2019:i:c:p:1-28 is not listed on IDEAS
    14. repec:eee:jiaata:v:33:y:2018:i:c:p:40-63 is not listed on IDEAS
    15. Armstrong, Christopher S. & Blouin, Jennifer L. & Jagolinzer, Alan D. & Larcker, David F., 2015. "Corporate governance, incentives, and tax avoidance," Journal of Accounting and Economics, Elsevier, vol. 60(1), pages 1-17.
    16. Kathleen Powers & John R. Robinson & Bridget Stomberg, 2016. "How do CEO incentives affect corporate tax planning and financial reporting of income taxes?," Review of Accounting Studies, Springer, vol. 21(2), pages 672-710, June.
    17. repec:eee:joacli:v:42:y:2019:i:c:p:80-103 is not listed on IDEAS
    18. Cen, Ling & Maydew, Edward L. & Zhang, Liandong & Zuo, Luo, 2017. "Customer–supplier relationships and corporate tax avoidance," Journal of Financial Economics, Elsevier, vol. 123(2), pages 377-394.

    More about this item

    Keywords

    Internal information quality; Management accounting; Tax avoidance; Tax risk;

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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