TY - JOUR
T1 - Valuation implications of socially responsible tax avoidance
T2 - Evidence from the electricity industry
AU - Inger, Kerry
AU - Stekelberg, James
N1 - Publisher Copyright:
© 2022 Elsevier Inc.
PY - 2022/7/1
Y1 - 2022/7/1
N2 - Prior literature suggests that firms may bear reputational costs associated with corporate tax avoidance, which could in turn reduce the net present value of firms’ tax planning strategies. However, these studies do not consider the fact that firms may have opportunities to avoid tax in socially responsible ways. We investigate the equity valuation implications of one form of socially responsible tax avoidance: claiming the renewable electricity production tax credit (PTC). We predict and find that investors more positively value tax savings generated from PTCs compared to other forms of corporate tax avoidance, consistent with the notion that socially responsible tax avoidance should not subject firms to reputational costs. Additionally, consistent with the role that CSR can play in enhancing a firm's reputational capital, we find evidence of a spillover effect in which investors more positively value other sources of tax avoidance to the extent the firm also reduces its taxes in a socially responsible way. Our results demonstrate the importance for managers to consider socially responsible tax avoidance as a component of a firm's tax planning portfolio and for policymakers to recognize the appeal of socially responsible tax strategies as the reputational consequences of tax avoidance become more prominent.
AB - Prior literature suggests that firms may bear reputational costs associated with corporate tax avoidance, which could in turn reduce the net present value of firms’ tax planning strategies. However, these studies do not consider the fact that firms may have opportunities to avoid tax in socially responsible ways. We investigate the equity valuation implications of one form of socially responsible tax avoidance: claiming the renewable electricity production tax credit (PTC). We predict and find that investors more positively value tax savings generated from PTCs compared to other forms of corporate tax avoidance, consistent with the notion that socially responsible tax avoidance should not subject firms to reputational costs. Additionally, consistent with the role that CSR can play in enhancing a firm's reputational capital, we find evidence of a spillover effect in which investors more positively value other sources of tax avoidance to the extent the firm also reduces its taxes in a socially responsible way. Our results demonstrate the importance for managers to consider socially responsible tax avoidance as a component of a firm's tax planning portfolio and for policymakers to recognize the appeal of socially responsible tax strategies as the reputational consequences of tax avoidance become more prominent.
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U2 - 10.1016/j.jaccpubpol.2022.106959
DO - 10.1016/j.jaccpubpol.2022.106959
M3 - Article
AN - SCOPUS:85125331310
SN - 0278-4254
VL - 41
JO - Journal of Accounting and Public Policy
JF - Journal of Accounting and Public Policy
IS - 4
M1 - 106959
ER -