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The effect of corporate tax avoidance on investments, and its relationship to firm liquidity

Andersen, Joachim; Tveiten, Axel Heim
Master thesis
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1760150.pdf (1.960Mb)
Preliminary thesis report.pdf (154.0Kb)
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http://hdl.handle.net/11250/2483984
Utgivelsesdato
2017
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Samlinger
  • Master of Science [1823]
Sammendrag
Despite decades of tax and investment research, little is known about the

relationship between a firm's ability to avoid income taxes and its level of

investments. For instance, several researchers conclude that firms’ investment

decisions are sensitive to cash flow variations. However, there is to our

knowledge conducted little or no research on the relationship between liquidity

and investment-sensitivity in relation to tax avoidance. The purpose of this study

is to shed some initial evidence on these questions, and provide new valuable

insight to both future and previous research on a frequently discussed topic.

Using firm-level panel data, we find both statistically and economically

significant evidence of that investments is positively related to the cash flow

effect of tax avoidance. We also find that higher liquidity firms tend to invest

more and companies classified as “good liquidity firms” seem to have a greater

investment sensitivity towards changes in the effective tax rate.

We strive to impose minimal requirements on our sample to maximize our

coverage. Hence, our sample includes both listed and unlisted Norwegian

companies for the 2006-2015 fiscal years. With respect to available data on each

company's cash flow statement, including unlisted companies has its

shortcomings. Since our dataset does not have a direct measure of investment or

capital expenditures, we define three alternative Investment measures to ensure

the robustness of our results. Further, tax avoidance is measured as the level of

effective tax rates relative to pretax income. As in Dyreng et al. 2008, we define

tax avoidance broadly to encompass anything that reduces the firm’s taxes relative

to its pretax accounting income.

All our results are thoroughly tested to ensure the robustness of our findings.
Beskrivelse
Masteroppgave(MSc) in Master of Science in Business, Business law, tax and accounting - Handelshøyskolen BI, 2017
Utgiver
BI Norwegian Business School

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