Geopolitical risk, financial constraints, and tax avoidance

Tariq Haque, Thu Phuong Pham () and Jiaxin Yang

Journal of International Financial Markets, Institutions and Money, 2023, vol. 88, issue C

Abstract: We investigate the impact of geopolitical risk on corporate tax avoidance using a sample of all public US firms from 2005 to 2019. We find that an increase in geopolitical risk leads to higher engagement in corporate tax avoidance, as measured by a decline in cash-effective tax rates in both the short run and long run. This effect is more pronounced for firms with higher financial constraints. Furthermore, using the 2016 OPEC agreement as a geopolitical shock, we find that oil-related firms engaged in more aggressive tax avoidance activities than their non-oil-related counterparties. Our findings are robust to an alternative measure of industry exposure.

Keywords: Geopolitical risk; Financial constraints; Tax avoidance; Oil supply (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:88:y:2023:i:c:s1042443123001269

DOI: 10.1016/j.intfin.2023.101858

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