Is tax aggressiveness associated with tax litigation risk? Evidence from D&O Insurance

• 成果类型: Article
• 署名作者: Donelson, Dain C.; Glenn, Jennifer L.; Yust, Christopher G.
• 署名单位: University of Iowa; University System of Ohio; Ohio State University; Texas A&M University System; Texas A&M University College Station
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-021-09612-w
• 发表日期: 2022
• 页码: 519-569
• 关键词: officers liability insurance; DIRECTORS; avoidance; cost; Diversion; FRAUD

摘要

This study uses directors' and officers' (D&O) insurance data to examine the relation between tax aggressiveness and tax litigation risk. D&O insurance covers litigation costs for tax-related cases. Thus D&O insurance premiums provide an independent and direct assessment of the risk in a firm's tax aggressive strategies, which mitigates some of the challenges in studying tax risk. Based on pricing decisions, D&O insurers appear to view tax aggressiveness, as measured by industry- and size-adjusted cash effective tax rates (a measure where higher rates are associated with more aggressiveness), as increasing tax-related litigation risk. Regarding tax uncertainty, premiums increase (decrease) as unrecognized tax benefits (UTB-related settlements with tax authorities) increase. Finally, D&O insurers focus on firms with outbound tax haven activity when pricing tax aggressiveness. Overall, this suggests D&O insurers include aspects of both low taxes and tax uncertainty when pricing tax litigation risk.