Product market threats and tax avoidance

Tae-Nyun Kim and Pil-Seng Lee

International Review of Financial Analysis, 2023, vol. 86, issue C

Abstract: In this paper, we find that product market threats increase firms’ tax avoidance. This association is especially observed for firms that pursue tax avoidance more than their optimal target level (i.e., actively tax-avoiding firms). In addition, among these firms with active tax avoidance practices, firms with weaker corporate governance structure, lower financial flexibility, and greater predation risk are more likely to experience the positive relationship between product market threats and tax avoidance. Further evidence suggests that higher levels of tax avoidance driven by product market threats do not come with higher levels of tax uncertainty and rather positively affect firms’ profitability. This result highlights the decoupling relationship between tax avoidance and tax uncertainty.

Keywords: Product market threats; Product market competition; Tax avoidance; Speed of adjustment; Corporate governance; Financial constraints; Predation risk (search for similar items in EconPapers)
JEL-codes: G30 G34 H26 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:86:y:2023:i:c:s1057521923000443

DOI: 10.1016/j.irfa.2023.102528

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