How do labor adjustment costs affect corporate tax planning? Evidence from labor skills

Justin Hung Nguyen

International Review of Financial Analysis, 2022, vol. 83, issue C

Abstract: Labor adjustment costs (LACs) are a broad concept and involve costs incurred to search, hire, train, retain, and fire employees. Using the level of labor skills as a proxy for LACs, I find that higher LACs are associated with greater tax savings. The effect is stronger for firms facing more intense competition, and firms in states that strengthen labor protection, but weaker for firms in states that restrain labor mobility. High-LAC firms avoid taxes in order to generate precautionary cash. Collectively, the evidence indicates a significant influence of frictions in labor markets (i.e., LACs) on corporate tax planning behavior.

Keywords: Labor skill; Labor adjustment cost; Tax avoidance; Cash holding (search for similar items in EconPapers)
JEL-codes: E24 G32 H26 J24 M54 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:83:y:2022:i:c:s1057521922002496

DOI: 10.1016/j.irfa.2022.102293

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