Advertising and tax avoidance

Sattar Mansi, Jianping Qi () and Han Shi ()
Additional contact information
Jianping Qi: University of South Florida
Han Shi: Greenville University

Review of Quantitative Finance and Accounting, 2020, vol. 54, issue 2, No 3, 479-516

Abstract: Abstract We examine the link between firms’ advertising and their tax avoidance. By generating customer awareness, advertising helps shape firm image and reputation among customers. Such benefits of advertising would diminish if the firm is viewed as a greedy tax dodger. Greater customer awareness generated by higher advertising spending also increases the likelihood that customers would find out tax-aggressive behaviors of the firm. Thus, firms that spend more on advertising may want to be less tax-aggressive. Consistent with this argument, we find that firms with a greater extent of advertising spending have fewer tax-sheltering activities, smaller book-tax differences, and higher cash-effective tax rates. The negative effect of advertising on tax avoidance is stronger for firms that are less known, more opaque, or that have lower institutional holdings. We control for other factors affecting tax avoidance, including corporate governance and social responsibility ratings. We also use the instrumental variable method, propensity score matching, and change regressions to address endogeneity concerns. Our results remain statistically and economically significant.

Keywords: Advertising; Tax avoidance; Reputation; Informational opacity (search for similar items in EconPapers)
JEL-codes: G30 H26 M37 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://link.springer.com/10.1007/s11156-019-00796-6 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:rqfnac:v:54:y:2020:i:2:d:10.1007_s11156-019-00796-6

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/11156/PS2

DOI: 10.1007/s11156-019-00796-6

Access Statistics for this article

Review of Quantitative Finance and Accounting is currently edited by Cheng-Few Lee

More articles in Review of Quantitative Finance and Accounting from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().