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Firm-level political risk and corporate tax avoidance

Author

Listed:
  • Mahmud Hossain

    (University of West Georgia)

  • Gerald J. Lobo

    (University of Houston)

  • Santanu Mitra

    (Wayne State University)

Abstract

This study investigates whether firm-level political risk increases managers’ propensity to avoid taxes. Using a measure of firm-level political risk developed by Hassan et al. (Quart J Econom 134(4):2135–2202, 2019) and several commonly used measures of tax avoidance, we find that corporate tax avoidance increases with firm-level political risk and that the main results hold in various supplemental and endogeneity tests. In cross-sectional tests, we document that the positive relationship between firm-level political risk and tax avoidance is stronger for lower levels of tax avoidance, and is weaker when firms have superior cash flow performance and higher cash holdings. In addition, we show that the positive relationship between firm-level political risk and tax avoidance is stronger during the Trump administration’s trade policy changes as well as during the global financial crisis.

Suggested Citation

  • Mahmud Hossain & Gerald J. Lobo & Santanu Mitra, 2023. "Firm-level political risk and corporate tax avoidance," Review of Quantitative Finance and Accounting, Springer, vol. 60(1), pages 295-327, January.
    • Handle: RePEc:kap:rqfnac:v:60:y:2023:i:1:d:10.1007_s11156-022-01095-3
    DOI: 10.1007/s11156-022-01095-3
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    Cited by:

    1. Wei Yu & Jianjun Jia & Ying Zheng, 2023. "Political uncertainty and corporate working capital in China," Review of Quantitative Finance and Accounting, Springer, vol. 61(3), pages 927-966, October.

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    More about this item

    Keywords

    Firm-level political risk; Corporate tax avoidance; Change analysis; Cash flow performance; Corporate cash holding;
    All these keywords.

    JEL classification:

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

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