School of Accountancy Faculty Publications and Presentations
Document Type
Article
Publication Date
12-2023
Abstract
Highlights
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This study investigates the relation between climate policy uncertainty and corporate tax avoidance.
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Firms undertake aggressive tax avoidance strategies during periods of heightened climate policy uncertainty.
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Further analysis indicates that cash savings from lower tax payments are used to pay dividends and not retained for reinvestment.
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Findings are consistent with the precautionary hypothesis that firms become more (i) conservative in their long-term investment strategies and (ii) risk-averse during periods of elevated climate policy uncertainty.
Abstract
This study examines the relation between climate policy uncertainty and corporate tax avoidance. Using a novel measure of climate policy uncertainty (CPU), we document that CPU is negatively related to effective tax rates for both contemporary and future years. During higher levels of CPU, firms tend to undertake more aggressive forms of tax avoidance, such as long-term tax planning or tax sheltering. Further analysis suggests that the cash savings from lower tax payments are used to pay dividends and not retained for reinvestments. We tackle the endogenous concern with an instrumental variable approach and the firm fixed effect model. Overall, our findings are consistent with the precautionary hypothesis that firms become more conservative in their long-term investment strategies and are risk-averse when there are uncertainties around climate policies.
Recommended Citation
Amin, Md Ruhul, Akinloye Akindayomi, Md Showaib Rahman Sarker, and Rafiqul Bhuyan. "Climate policy uncertainty and corporate tax avoidance." Finance Research Letters 58 (2023): 104581. https://doi.org/10.1016/j.frl.2023.104581
Publication Title
Finance Research Letters
DOI
10.1016/j.frl.2023.104581
Comments
Original published version available at https://doi.org/10.1016/j.frl.2023.104581