Journal article
Political costs and corporate tax avoidance: Evidence from sin firms
Journal of accounting and public policy, Vol.41(1), pp.1-22
01/01/2022
DOI: 10.1016/j.jaccpubpol.2021.106861
Abstract
The products and services of firms operating in sin industries (alcohol, tobacco, gambling, and firearms) run contrary to social norms and can produce significant negative externalities for society. As such, we expect that sin firms are at greater risk of incurring political costs in the form of additional regulation, higher excise taxes, or capital market intervention if they come under scrutiny for their income tax avoidance practices. Because of the nature of their products, regulators and policymakers are likely to face less pushback on new regulations or taxes on these firms. Sin firms start with a lower ability to influence the political process than firms in non-sin industries. Consequently, we hypothesize and find that sin firms exhibit less tax avoidance than non-sin firms, particularly through uncertain and more risky tax avoidance strategies. The negative relationship between the status of sin firms and tax avoidance is less pronounced in firms that accumulate political capital via intensive lobbying activities. Exploiting changes in partisan control of the Congress and White House, difference-in-differences tests show that firearm firms engage in less (more) tax avoidance when the Democrats (Republican) control both the Congress and White House. Overall, we conclude that political costs play an important role in corporate tax avoidance decisions. (c) 2021 Elsevier Inc. All rights reserved.
Details
- Title: Subtitle
- Political costs and corporate tax avoidance: Evidence from sin firms
- Creators
- Cong Wang - Chinese University of Hong Kong, ShenzhenRyan J. Wilson - University of OregonShuran Zhang - Hong Kong Polytechnic UniversityHong Zou - University of Hong Kong
- Resource Type
- Journal article
- Publication Details
- Journal of accounting and public policy, Vol.41(1), pp.1-22
- DOI
- 10.1016/j.jaccpubpol.2021.106861
- ISSN
- 0278-4254
- eISSN
- 1873-2070
- Publisher
- Elsevier
- Number of pages
- 22
- Language
- English
- Date published
- 01/01/2022
- Academic Unit
- Accounting
- Record Identifier
- 9984380552102771
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