The Effect of Industrial Diversification on Firm Taxes

• 成果类型: Article
• 署名作者: Wentland, Kelly
• 署名单位: George Mason University
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/TAR-2016-0236
• 发表日期: 2023
• 页码: 453-478
• 关键词: corporate diversification; earnings management; avoidance; incentives; benefits; equity; COSTS; debt; discount; mergers

摘要

This study investigates whether industrial diversification generally provides a tax advantage and how the convexity of the tax system contributes to this benefit. The main findings show that multi-industry operations lower a firm's taxes and income volatility relative to single industry operations on average, but the benefit is not universal. Namely, there is no significant tax advantage when multi-industry firms have high crossindustry cash flow correlations or when limitations are placed on the convexity mechanism, such as when firms have recent diversifying acquisitions or a high degree of crossjurisdiction activity. To shed new light on the mechanism through which U.S. firms realize this benefit, I exploit two temporary policies expected to reduce tax convexity via extensions of loss carryback periods. I find these policies also mitigate the tax advantage. Taken together, the results underscore how context matters in determining whether a firm will realize a tax advantage from multi-industry operations.