A Review of Tax Research

Hanlon, Michelle; Heitzman, Shane

doi:10.2139/ssrn.1476561

Cited by 703 publications

(1,357 citation statements)

References 373 publications

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“…For example, Frank et al (2009), Wilson (2009), Lisowsky (2010), and Dyreng et al (2008 (hereafter FIN 48), several recent papers measure firms' tax aggressiveness using the magnitude of their uncertain tax benefits (e.g., Rego and Wilson, 2012;Lisowsky et al, 2013). As we discuss in more detail below, we carefully consider the specific attribute of tax avoidance that is called for by our research question (Hanlon and Heitzman, 2010). develop and test a model that links managers' equity-based compensation to aggressive tax avoidance. They conjecture the existence of complementarities between tax-sheltering and rent extraction.…”

Section: Prior Literaturementioning

confidence: 99%

Corporate governance, incentives, and tax avoidance

Armstrong

Blouin

Jagolinzer³

et al. 2015

Journal of Accounting and Economics

692

242

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We examine the link between corporate governance, managerial incentives, and corporate tax avoidance. Similar to other investment opportunities that involve risky expected cash flows, unresolved agency problems may lead managers to engage in more or less corporate tax avoidance than shareholders would otherwise prefer. Consistent with the mixed results reported in prior studies, we find no relation between various corporate governance mechanisms and tax avoidance at the conditional mean and median of the tax avoidance distribution. However, using quantile regression, we find a positive relation between board independence and financial sophistication for low levels of tax avoidance, but a negative relation for high levels of tax avoidance. These results indicate that these governance attributes have a stronger relation with more extreme levels of tax avoidance, which are more likely to be symptomatic of over-and under-investment by managers. Abstract: We examine the link between corporate governance, managerial incentives, and corporate tax avoidance. Similar to other investment opportunities that involve risky expected cash flows, unresolved agency problems may lead managers to engage in more or less corporate tax avoidance than shareholders would otherwise prefer. Consistent with the mixed results reported in prior studies, we find no relation between various corporate governance mechanisms and tax avoidance at the conditional mean and median of the tax avoidance distribution. However, using quantile regression, we find a positive relation between board independence and financial sophistication for low levels of tax avoidance, but a negative relation for high levels of tax avoidance. These results indicate that these governance attributes have a stronger relation with more extreme levels of tax avoidance, which are more likely to be symptomatic of over-and under-investment by managers.JEL: G34, H25, H26, K34, M41

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Section: Prior Literaturementioning

confidence: 99%

Corporate governance, incentives, and tax avoidance

Armstrong

Blouin

Jagolinzer³

et al. 2015

Journal of Accounting and Economics

692

242

View full text Add to dashboard Cite

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“…Taxes are well known to be important parameters of the institutional environment of investments (for an overview, see Shackelford and Shevlin 2001;Graham 2008;Hundsdoerfer et al 2008;Hanlon and Heitzman 2010). Taxes on both the corporate and shareholder levels can significantly affect investment and divestment decisions.…”

Section: Introductionmentioning

confidence: 99%

Hold or sell? How capital gains taxation affects holding decisions

et al. 2016

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Investments with exit flexibility require decisions regarding both the investment and holding period. Because selling an investment often leads to taxable capital gains, which crucially depend on the duration of an investment, we investigate the impact of capital gains taxation on exit timing under different tax systems. We observed that capital gains taxation delays exit decisions but loses its decision relevance for very long holdings. Often the optimal exit time, which indicates the maximal present value of future cashflows, cannot be determined analytically. However, we identify the breakeven exit time that guarantees present values exceeding those of an immediate sale. While, after-taxes, an immediate sale is often optimal, long holding periods might also be attractive for investors depending on the degree of income and corporate tax integration. A classic corporate tax system often indicates holdings over more than 100 periods. By contrast, a shareholder relief system indicates the earliest breakeven exit time and thus the highest level of exit timing flexibility. Surprisingly, high retention rates are likely to accelerate sales under a classic corporate system. Additionally, the worst exit time, which should be avoided by investors, differs tremendously across tax systems. For an integrated tax system with full imputation, the worst time is reached earlier than under partial or non-integrated systems. These results could help to predict investors' behavior regarding changes in capital gains taxation and thus are of interest for both investors and tax policymakers. Furthermore, the results emphasize the need to control for the underlying tax system in cross-country empirical studies.

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“…3 Graham et al (2012) focus primarily on the extent to which managers use the tax accounts to manipulate earnings and whether the equity markets price the tax information in the financial statements. Hanlon and Heitzman (2010) provide a similar, though less detailed, review of AFIT research.…”

Section: Introductionmentioning

confidence: 99%