Journal article
Is tax aggressiveness associated with tax litigation risk? Evidence from D&O Insurance
Review of accounting studies, Vol.27(2), pp.519-569
06/01/2022
DOI: 10.1007/s11142-021-09612-w
Abstract
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.
Details
- Title: Subtitle
- Is tax aggressiveness associated with tax litigation risk? Evidence from D&O Insurance
- Creators
- Dain C. Donelson - University of IowaJennifer L. Glenn - The Ohio State UniversityChristopher G. Yust - Texas A&M University
- Resource Type
- Journal article
- Publication Details
- Review of accounting studies, Vol.27(2), pp.519-569
- Publisher
- Springer Nature
- DOI
- 10.1007/s11142-021-09612-w
- ISSN
- 1380-6653
- eISSN
- 1573-7136
- Number of pages
- 51
- Grant note
- Red McCombs School of Business Mays Business School
- Language
- English
- Date published
- 06/01/2022
- Academic Unit
- Accounting; Law Faculty
- Record Identifier
- 9984380397002771
Metrics
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