How Quickly Do Firms Adjust to Optimal Levels of Tax Avoidance?

• 成果类型: Article
• 署名作者: Kim, Jaewoo; McGuire, Sean T.; Savoy, Steven; Wilson, Ryan
• 署名单位: University of Rochester; Texas A&M University System; Texas A&M University College Station; University of Illinois System; University of Illinois Chicago; University of Illinois Chicago Hospital; University of Oregon
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12481
• 发表日期: 2019
• 页码: 1824-1860
• 关键词: capital structure; cost; determinants; incentives

摘要

The trade-off literature asserts that managers weigh the direct benefits of tax avoidance against the associated nontax costs. This literature implies each firm has a unique optimal level of tax avoidance that balances these costs and benefits. Our study is the first to document how quickly the average firm moves toward its optimal level of tax avoidance. We find that the typical firm converges toward its optimum at a rate that ranges from approximately 69 to 84 percent over a three-year period, depending upon model specifications. Consistent with asymmetric levels of frictions across the tax avoidance distribution, we find the speed of adjustment is greater for firms below their optimal level of tax avoidance than for firms above. We perform additional cross-sectional analyses to provide insight into some of the frictions that prevent firms from adjusting completely to their optimal level of tax avoidance. We generally find growth firms exhibit slower adjustment speeds and provide limited evidence that both multinational firms and income-mobile firms exhibit faster adjustment speeds.