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Are corruption and corporate tax avoidance in the United States related?

Author

Listed:
  • Ahmed Al-Hadi

    (Curtin University
    College of Banking and Financial Studies Sultanat of Oman)

  • Grantley Taylor

    (Curtin University)

  • Grant Richardson

    (Macquarie University)

Abstract

We examine whether state-level corruption and corporate tax avoidance in the United States (U.S) are related. Using a sample of 36,078 U.S. firm-year observations from 1998 to 2014, we find that corruption is significantly positively related to tax avoidance. Our main finding is consistent across a series of robustness tests. In additional analysis at the state level, we observe that corruption is significantly positively related to corporate tax avoidance in states that have low levels of litigation risk, irrespective of whether the states rank high or low in terms of corporate governance, social capital, or money laundering. We also correlate state- and firm-level corruption with firm-level corporate tax avoidance and find that the interaction terms are generally significantly positively related to corporate tax avoidance. Finally, we show that state-level corruption and corporate tax avoidance are complementary across industry sectors. Overall, our results indicate that the broader state-level corruption (cultural) effects of where a firm is headquartered have significant consequences for corporate tax avoidance.

Suggested Citation

  • Ahmed Al-Hadi & Grantley Taylor & Grant Richardson, 2022. "Are corruption and corporate tax avoidance in the United States related?," Review of Accounting Studies, Springer, vol. 27(1), pages 344-389, March.
    • Handle: RePEc:spr:reaccs:v:27:y:2022:i:1:d:10.1007_s11142-021-09587-8
    DOI: 10.1007/s11142-021-09587-8
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    2. Ahsan Habib & Mabel D' Costa & Ahmed Khamis Al‐Hadi, 2023. "Consequences of local social norms: A review of the literature in accounting, finance, and corporate governance," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(1), pages 3-45, March.
    3. Kong, Gaowen & Xu, Li & Zhang, Wenzhe, 2022. "The benevolence of the billionaires: Evidence from China's Hurun rich list1," Finance Research Letters, Elsevier, vol. 48(C).
    4. Christofer Adrian & Mukesh Garg & Anh Viet Pham & Soon-Yeow Phang & Cameron Truong, 2023. "Do Natural Disasters Affect Corporate Tax Avoidance? The Case of Drought," Journal of Business Ethics, Springer, vol. 186(1), pages 105-135, August.

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    More about this item

    Keywords

    Corruption; Corporate tax avoidance;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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