Tax Avoidance and Firm Risk: New Insights from a Latent Class Mixture Model

• 成果类型: Article
• 署名作者: Hutchens, Michelle; Rego, Sonja O.; Williams, Brian
• 署名单位: University of Illinois System; University of Illinois Urbana-Champaign; Indiana University System; Indiana University Bloomington; IU Kelley School of Business; Texas A&M University System; Texas A&M University College Station; Mays Business School
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/TAR-2020-0343
• 发表日期: 2024
• 页码: 285-313
• 关键词: executive stock-options; cost; INFORMATION; incentives; disclosure; return

摘要

We examine the relations between tax avoidance and two components of firm risk (priced risk and idiosyncratic risk) using latent class mixture models. OLS regressions suggest that tax avoidance is negatively related to both priced risk and idiosyncratic risk. However, results from latent class mixture models reveal that 35.6 (58) percent of the sample exhibits a significant positive association between tax avoidance and priced (idiosyncratic) risk and firm characteristics are strikingly different across the latent classes. We use these differences to develop parsimonious models to predict latent class assignments, which we then use to demonstrate that firms predicted to have a positive relation between tax avoidance and priced risk or idiosyncratic risk have more negative future tax outcomes, including higher relative cash tax rate volatility, larger additions to tax reserves, larger payouts to tax authorities, and more negative tax -related news coverage over the following three years. Data Availability: Data are available from the public sources cited in the text.