Working paper
Corporate Income Tax Assessments and Product Price Discounts
SSRN
05/06/2025
DOI: 10.2139/ssrn.5208755
Abstract
We examine whether firms offer price discounts to generate cash flows to meet tax obligations. Using scanner-level price data, we find that product discounts are positively associated with the level of unrecognized tax benefit reserves and the amount of future tax settlements. These effects are weaker when firms have excess cash holdings and internally generate sufficient cash flow; in contrast, these effects are stronger when firms are financially constrained. Extending to a product characteristic, we find that these effects are stronger for products with higher price elasticity of demand. We also find that price discounts result in higher cash flows at the productyear and firm-year levels. Collectively, these findings suggest that firms rely on price discounts on products with higher demand elasticity to generate cash flows to pay tax obligations when internal and external sources are limited. We mitigate endogeneity concerns by leveraging the European Commission's state aid investigations in 2013 as a shock to unfavorable tax obligations. Overall, we provide evidence on a novel link between corporate tax assessments and pricing decisions.
Details
- Title: Subtitle
- Corporate Income Tax Assessments and Product Price Discounts
- Creators
- Jaewoo Kim - University of OregonRyan J. Wilson - University of IowaYucheng Yang - Chinese University of Hong KongShi Xu - Central University of Finance and Economics
- Resource Type
- Working paper
- DOI
- 10.2139/ssrn.5208755
- Publisher
- SSRN
- Number of pages
- 50 pages
- Language
- English
- Date posted
- 05/06/2025
- Academic Unit
- Accounting
- Record Identifier
- 9984820560602771
Metrics
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