Taxes and Financial Constraints: Evidence from Linguistic Cues

Kelvin K. F. Law · Lillian F. Mills

372 citations0/0 files storedJournal of Accounting Research

No readable copy stored yet — this record is metadata only.

No open-access location is known for this record yet.

Literature note Cite in a project Citation map

Corporate Taxation and Avoidance Corporate Finance and Governance Taxation and Legal Issues

Abstract

ABSTRACT Using a new measure of financial constraints based on firms’ qualitative disclosures, we find that financially constrained firms—firms that use more negative words in their annual reports—pursue more aggressive tax planning strategies as evidenced by: (1) higher current and future unrecognized tax benefits, (2) lower short‐ and long‐run current and future effective tax rates, (3) increase in tax haven usage for their material operations, and (4) higher proposed audit adjustments from the Internal Revenue Service. We exploit the unexpected closures of local banks as exogenous liquidity shocks to show that firms’ external financial constraints affect their tax avoidance strategies. Overall, the linguistic cues in firms’ qualitative disclosures provide incremental information beyond traditional accounting variables or commonly used effective tax rates to reveal and predict tax aggressiveness, both contemporaneously and in the future.

Paper brief

Loading…

Cite this work

Citation unavailable for this work.

BibTeX RIS CSL-JSON

No public copy is stored for this record, so only the metadata is cited.

Citations in this library

Citation map →

Stored only when both papers are in the corpus — 372 citations exist upstream.

References

2008Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches 2001Bad is Stronger than Good 1997Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?2003Corporate Governance and Equity Prices 1980Financial Ratios and the Probabilistic Prediction of Bankruptcy 2011When Is a Liability Not a Liability? Textual Analysis, Dictionaries, and 10‐Ks 1997Industry costs of equity 2010New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index

Cited by

2018Perspectives on Corporate Tax Planning: Observations from the Past Decade 2018When Does Tax Avoidance Result in Tax Uncertainty?2017The taxman cometh: Does tax uncertainty affect corporate cash holdings?2015Tax Avoidance and the Implications of Weak Internal Controls 2023Corporate digital transformation and labor structure upgrading 2013Transfer Pricing: Strategies, Practices, and Tax Minimization

Explore the map →

Papers that cite the same references — the relational fallback while embeddings are still backfilling.

Imported from OpenAlex (CC0) — nothing here is generated.