WORKING PAPER SERIES

No. 34 | July 2020

Brühne, Alissa I. | Jacob, Martin

Corporate Tax Avoidance and the Real

Effects of Taxation: A Review

TRR 266 Accounting for Transparency

Funded by the Deutsche Forschungsgemeinschaft (DFG, German Research Foundation):
Collaborative Research Center (SFB/TRR) – Project-ID 403041268 – TRR 266 Accounting for Transparency

www.accounting-for-transparency.de

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 Corporate Tax Avoidance and the Real Effects of
Taxation: A Review

Alissa I. Brühne and Martin Jacob∗

Abstract

The tax literature of the past two decades has been dominated by empirical studies on
corporate tax avoidance. What this literature lacks, however, are a quantitative synthesis
of these studies and an in-depth discussion of potential convergences and divergences in
empirical findings. To thoroughly evaluate empirical results, we provide a comprehensive
theoretical framework that allows us to not only organize the vast tax avoidance litera-
ture, but also identify underexplored yet fruitful research areas. Specifically, we derive
theoretical predictions on how various determinants affect the tax avoidance decision of a
profit-maximizing firm. We further theoretically assess the consequences and real effects
of tax avoidance. In a subsequent step, we link our theoretical predictions to a quantitative
synthesis of all empirical tax avoidance studies published in the top accounting, finance,
and economics journals over the last two decades. Combining theoretical predictions with
a quantitative synthesis allows us to identify potential empirical inconsistencies and areas
for future tax research.

Keywords: Tax avoidance, literature review, real effects, quantitative synthesis

JEL Classification: M48, M41, H25, H26

∗
Brühne is at WHU – Otto Beisheim School of Management ([email protected]) and Jacob is at WHU –
Otto Beisheim School of Management ([email protected]). We thank Stefan J. Huber, Harm Schütt, Cinthia
Valle Ruiz, Robert Vossebürger, and Thorben Wulff for helpful comments.

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1 Introduction

Taxes represent a major cost factor for firms and play a pervasive role in corporate investment
and financing decisions (e.g., Scholes and Wolfson, 1992). To reduce their effective tax bur-
den, many firms engage in various tax avoidance activities. Recently, these activities have led
to a growing interest in corporate tax practice—not only among policy makers and the general
public, but also among tax researchers. Over the last two decades, a large number of studies
examining the determinants and consequences of corporate tax avoidance have been published.
Despite this large and still growing literature, many studies provide conflicting results or lack
a clear theoretical underpinning.1 This review addresses this concern and provides a theoret-
ically grounded summary of the empirical tax avoidance literature. Furthermore, we are the
first to systematically compare theory and aggregated empirical evidence to identify potential
inconsistencies and fruitful paths for future research.
Specifically, we synthesize and review the literature on the determinants and consequences
of corporate tax avoidance and the real effects of taxation. We organize our literature review
around the theoretical framework provided by Dyreng, Jacob, Jiang, and Müller (2019b) (in
the following referred to as DJJM framework). Based on this framework, we hypothesize that
a profit-maximizing firm will engage in tax avoidance if the marginal benefits associated with
such activities exceed the additional costs (see also Scholes and Wolfson, 1992). Besides a
theoretical evaluation of tax avoidance determinants, the DJJM framework allows us to also
assess the consequences and real effects of corporate tax avoidance and taxation in general.
To compare our theoretical predictions to the large body of empirical studies, we conduct an
extensive quantitative synthesis of the empirical tax avoidance literature of the last two decades.
Our innovative approach allows us to conduct a systematic review of a specific (rather mature)
literature field by quantitatively synthesizing the empirical evidence (Glass, 1976; Buckley,
Devinney, and Tang, 2014). A classical meta-analysis does not seem feasible in the tax avoid-
ance literature. Due to the substantial variation in tax avoidance definitions and operationaliza-
tions across studies, one cannot reliably aggregate the empirical results of different tax avoid-
1
Several tax avoidance studies rely on the relatively broad framework by Scholes and Wolfson (1992). While
we do acknowledge that their framework provides a thorough basis for evaluating how taxes affect business de-
cisions, we stress the need for a more detailed analytical model disentangling the trade-off firms face in their tax
avoidance decision.

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ance studies into an actual statistical meta-regression (Pomeroy and Thornton, 2008; Khlif and
Chalmers, 2015).2 However, we believe that some form of quantitative synthesis is still needed
to move the tax literature forward. In this review, we therefore strive to quantitatively synthesize
the empirical findings obtained by prior tax avoidance studies to create a better understanding
of potential consistencies and inconsistencies between theory and empirical evidence. Instead
of striving to identify the true effect in the population, our quantitative synthesis approach fo-
cuses on a depiction of the dispersion of the coefficient signs and the variation in statistical
power across empirical tax avoidance studies. Our approach proceeds as follows: first, we em-
ploy a structured keyword search and identify all empirical studies that address corporate tax
avoidance determinants or consequences and which have been published in one of the top ac-
counting, finance, or economics journals over the last two decades. We identify 137 studies in
these journals. Second, we extract the coefficient signs and significance levels of all the rele-
vant explanatory variables from the main regressions of these studies. Third, we aggregate the
empirical evidence and evaluate it under consideration of the DJJM framework. As a general
trend, we find that the majority of the papers address determinants, whereas the consequences
and real effects of tax avoidance receive less (although recently growing) attention.
We identify 32 tax avoidance determinants from the empirical studies considered in our anal-
ysis.3 Based on the DJJM framework, an unambiguous directional prediction can be derived for
16 of these 32 determinants (e.g., leverage, growth opportunities, or financial reporting incen-
tives). For the other 16 determinants, the theoretical framework predicts that the benefits and
costs of tax avoidance are affected such that the predicted effect is ambiguous (e.g., intangi-
ble assets or market power). We find that the empirical evidence is consistent with theoretical
predictions for nine determinants with an unambiguous prediction (e.g., growth opportunities,
foreign operations, or financial constraints). For the other seven determinants with an unam-
biguous theoretical prediction, the empirical evidence seems mixed.4
2
Moreover, given that the empirical tax literature is dominated by U.S.-centered research, the samples of the
different studies could, in fact, not be fully independent. Thus, a meta-analysis might not properly identify the true
effect in the population.
3
Of these, the 20 most important determinants are discussed in this study. The remaining 12 determinants (i.e.,
life cycle stages, corporate complexity, customer base, family ownership, board characteristics, executive char-
acteristics, unions, internal information environment, corporate political activities, corporate social responsibility,
peer firms, and intermediaries) are discussed in the Online Appendix.
4
These determinants are losses, leverage, the external information environment, executive skills, the internal
information environment, financial reporting incentives, and peer tax practices.

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 For six of the 16 determinants with ambiguous theoretical predictions, there appears to be
a clear empirical tendency toward one direction.5 One example is the association between in-
tangibles and tax avoidance. While our theoretical prediction is ambiguous, there is a tendency
toward a positive association between intangibility and corporate tax avoidance in the empirical
studies considered. Taken together, the results of our determinant analysis highlight several
inconsistencies between theory and empirical evidence. Hence, we call for future work in ar-
eas where theory is not supported by empirical evidence or where theory is ambiguous but the
empirical results seem to favor one direction.
We also focus on the consequences of corporate tax avoidance in this study. We organize
the literature on tax avoidance consequences around four key constructs: transparency, cost of
capital, cost of debt, and firm value. For instance, a common notion in the literature is that
corporate tax avoidance should reduce the transparency of a firm’s operations. Under the caveat
that transparency can only be measured indirectly, the surveyed empirical studies report results
consistent with this notion. Of the 31 regressions considered in our quantitative synthesis, 81%
find a statistically significant and negative association between transparency and corporate tax
avoidance. With regard to cost of capital, cost of debt, and firm value, no clear (directional) pre-
diction can be derived from theory. However, clear empirical results seem to exist with respect
to corporate tax avoidance and cost of capital. Of the regressions considered in our analysis,
83% outline a significant positive association between these two constructs. With regard to tax
avoidance and cost of debt, 91% of the regressions considered emphasize a significant negative
association.
To obtain a holistic picture of current advances and trends in the tax literature, we also
discuss the growing number of studies on tax uncertainty and the real effects of taxation. Con-
cerning the latter, we focus on the real effects of taxation on corporate investment decisions.
We identify three different tax policy tools from prior literature that primarily affect corporate
investment decisions: statutory corporate tax rates, the deductibility of investment costs, and
other taxes. There is a consensus between theory and empirical evidence that statutory corpo-
rate tax rates reduce firms’ capital investment (e.g., Djankov, Ganser, McLiesh, Ramalho, and
5
The six identified determinants with empirical regularities are profitability, tangible assets, intangible assets,
family ownership, executive incentives, and executive characteristics. For some of these constructs, the empirical
results stem from a relatively low number of regressions and should thus be interpreted carefully.

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Shleifer, 2010; Giroud and Rauh, 2019). With respect to the tax deductibility of investment
costs, little empirical work has isolated specific tax elements, leaving room for more empirical
research in this area. The empirical literature also provides supporting evidence that taxes paid
by shareholders and other stakeholders (e.g., dividends or consumer taxes) affect corporate in-
vestment (e.g., Becker, Jacob, and Jacob, 2013; Alstadsæter, Jacob, and Michaely, 2017; Jacob,
Michaely, and Müller, 2019). However, there is still substantial room for more work on the real
effects of taxation and, in particular, of corporate tax avoidance.
Our study makes several contributions to the literature. First, we provide a structured and
quantitative review of the tax avoidance literature of the last two decades. Prior studies either
focus on the specific costs or benefits of corporate tax avoidance (e.g., Gallemore, Maydew, and
Thornock, 2014) or are confined to early and selected evidence (Shackelford and Shevlin, 2001;
Hanlon and Heitzman, 2010; Wilde and Wilson, 2018). Since the reviews by Shackelford and
Shevlin (2001) and Hanlon and Heitzman (2010), the tax avoidance literature has advanced sub-
stantially and the scope of the literature has widened (Wilde and Wilson, 2018). We summarize
these trends and discuss potential avenues for future research. Moreover, while Shackelford and
Shevlin (2001) and Hanlon and Heitzman (2010) primarily focus on U.S.-centered accounting
research, our review also accounts for international evidence and integrates studies from related
research fields (e.g., economics and finance).
Second, our study contributes by embedding the tax avoidance literature into a single com-
prehensive theoretical framework. The DJJM framework allows us to identify not only inter-
dependencies between different constructs, but also empirically underexplored yet theoretically
grounded research areas.
Third, our quantitative literature synthesis allows us to systematically analyze empirical
results. We provide a comprehensive understanding of the association between a specific deter-
minant or consequence and corporate tax avoidance. Aggregating the information from the 137
empirical studies considered in our analysis reveals novel insights and enables tax researchers
to identify areas where theory is not supported by empirical work, or where theory is ambigu-
ous but clear empirical regularities exist. The results of our quantitative synthesis further help
future empirical work to choose adequate research designs and control variables.

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2 Theoretical Framework to Structure the Literature

We organize our literature review around the theoretical framework proposed by Dyreng et al.
(2019b). Dyreng et al. (2019b) develop their framework to examine how tax incidence and tax
avoidance interact. Thus, applying the DJJM framework accounts more formally for the general
notion of including all taxes, all costs, and all parties (e.g., Scholes and Wolfson, 1992). We
believe that, beyond this original objective, the DJJM framework also allows for a breakdown
of the complexities underlying a profit-maximizing firm’s decision to engage in tax avoidance.
Dyreng et al. (2019b) define the after-tax profit function of a representative firm as follows:

Π(K, L, A) = [1 − (τ − A)] (ρF (K, L) − wL − ηrK) − (1 − η)rK − C(A) (1)

Dyreng et al. (2019b) assume that the representative firm strives to maximize after-tax profits
Π(K, L, A), instead of just minimizing taxes paid. The representative firm invests in capital K,
labor L, and tax avoidance A. All three investments are costly for the firm. The cost of capital
investment per unit amounts to r. The cost of labor per unit equals the wage cost w. It is
assumed that wages are fully tax deductible, whereas the tax deductibility of capital investment
is restricted by the parameter η ∈ [0, 1]. The restriction parameter η accounts for the fact that
tax deductibility is often lower than the actual cost of capital investment, which comprises the
costs of both financing and economic depreciation. Hence, η also captures any tax-induced
investment distortions (e.g., limited loss offset rules, limited accounting depreciation, or the
non-deductibility of the cost of equity capital). The statutory corporate tax rate on pre-tax
income is captured by the parameter τ .
Dyreng et al. (2019b) assume that firms engaging in corporate tax avoidance can reduce the
statutory tax rate by A percentage points, leading to an effective tax rate (ETR) of τ − A. Thus,
tax avoidance is modeled as a reduction in the tax rate. The authors also account for the fact
that tax avoidance can be assumed to be a (financially) risky and thus costly activity (Rego and
Wilson, 2012). Indeed, the costs associated with corporate tax avoidance C(A) can be manifold
and increase with a firm’s engagement level in tax avoidance activities (C 0 (A) > 0). Wilde
and Wilson (2018) distinguish three types of tax avoidance costs: agency, implementation, and
outcome costs. Outcome costs, for example, comprise potential reputation damages stemming

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from corporate tax avoidance engagement (e.g., Dyreng, Hoopes, and Wilde, 2016).6 Equation 1
implies that the optimal level of corporate tax avoidance must satisfy the following equation:

ρF (K ∗ , L∗ ) − wL∗ − ηrK ∗ = C 0 (A∗ ) (2)

The asterisks in Equation 2 denote the equilibrium values of the input factors K and L,
and corporate tax avoidance A. The expression on the left side of Equation 2 captures a firm’s
revenues minus all deductible costs. Hence, it depicts the corporate tax base. Intuitively, the
higher the tax base, the higher a profit-maximizing firm’s incentives are to engage in corporate
tax avoidance. The left-hand side of Equation 2 therefore captures the marginal benefit resulting
from each percentage point of tax avoided. The right-hand side of Equation 2 accounts for
the marginal cost of tax avoidance. While intuitively simple, Equation 2 encapsulates a wide
range of trade-off dynamics that determine the optimal level of corporate tax avoidance. For
example, it illustrates that, under limited tax deductibility of investment costs (η < 1), a firm
with a higher proportion of capital input will have greater incentives to engage in corporate tax
avoidance than a firm with a higher proportion of labor input. As Equation 2 displays, the DJJM
framework outlines the complexities of a firm’s tax avoidance decision in a very accessible yet
comprehensive way. Therefore, we use this theoretical framework to organize our synthesis of
the empirical tax avoidance literature.
The framework also allows for a review of the literature on real effects. According to Equa-
tion 1, the consequences of corporate tax avoidance can affect both capital investment K and
labor input L. This becomes apparent through the two first-order conditions of Equation 1:
1 − (τ − A∗ )
pFK (K ∗ , L∗ ) =r (3)
1 − η(τ − A∗ )
pFL (K ∗ , L∗ ) = w (4)

Equation 3 shows that the optimal level of capital K ∗ depends on the statutory tax rate, τ ,
and the optimal tax avoidance level, A∗ , if the tax deductibility of capital is restricted (η < 1).
In other words, tax avoidance activities can have real consequences for corporate investment
decisions (De Vito, Jacob, and Müller, 2019). Equation 4 contains the first-order condition for
6
Reputational concerns can affect not only the firm itself but also its top executives, due to for instance,
managerial career concerns, as highlighted by, for example, Chyz and Gaertner (2018).

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the optimal level of fully tax-deductible labor input. Taken together, Equations 3 and 4 indicate
that, as long as investment costs are not fully tax deductible (which holds for existing corporate
tax systems), capital represents a less attractive input factor, since it could increase the tax base.
Further, since the costs of tax avoidance C(A) affect the optimal level of tax avoidance, tax
avoidance also affects the optimal level of labor and capital input.
In a final step, we expand our discussion of the role of taxes in firm decisions beyond tax
avoidance and also consider the real effects of tax rules. Specifically, we are interested in how
specific tax policy tools can affect corporate investment decisions. Equation 3 outlines how
tax policy can influence the optimal level of capital investment K ∗ . Policy makers can change
either the statutory tax rate τ or any tax base item that determines the deductibility η of the
costs associated with capital investment (e.g., depreciation rules, loss offset restrictions, or the
deductibility of interest expenses). Taxes will have no impact on investment if the tax system
allows the cost of capital investment to be fully deducted (η = 1), that is, if the tax system is
neutral (Diamond and Mirrlees, 1971; Sandmo, 1974; Boadway and Bruce, 1984). However, in
reality, the deductibility of the cost of capital investment r will always be limited (η < 1) (e.g.,
Sandmo, 1974). Hence, a higher corporate tax rate reduces capital investment (∂K ∗ /∂τ < 0).
Further, if policy makers increase the deductibility of investment expenses (i.e., move η closer to
a value of one), corporate investment should increase (∂K ∗ /∂η > 0). In Section 7, we discuss
the empirical evidence on the real effects of taxation. Specifically, we focus on the real effects
of tax policy changes of either τ or η. Thus, Section 7 complements our discussion of within-
firm actions, that is, firms’ engagement in tax avoidance A∗ , by outlining how the regulatory
tax environment can shape corporate investment decisions.

3 Sampling Approach of the Quantitative Synthesis

There is substantial variation in definitions and operationalization across tax avoidance stud-
ies. Hence, a classical meta-analysis that aggregates the results of all empirical studies into one
statistical meta-regression is not feasible for our research objective (Pomeroy and Thornton,
2008; Khlif and Chalmers, 2015). The general idea of quantitatively assessing the literature is,
however, still appropriate, since we are primarily interested in exploring empirical regularities
across tax avoidance studies. This study therefore adopts an innovative quantitative synthesis

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approach focusing on the documentation of the dispersion of the coefficient sign and signifi-
cance levels across empirical tax avoidance studies.
We conduct a systematic search process and first define all relevant publication outlets con-
sidered in our structured literature search. We set the scope of our synthesis to studies published
in top accounting, finance, and economics journals. To identify top accounting and finance jour-
nals, we refer to the Erasmus Research Institute of Management Journal List (EJL).7 From this
list, we include all journals with an EJL STAR or P classification in our search process. We
also include the Journal of the American Tax Association in our journal list, given that this jour-
nal represents an important outlet for (U.S. centered) tax research. To identify top economics
journals, we follow the Scientific Journal Rankings.8
Table 1 lists all 39 accounting, finance, and economics journals considered in our structured
literature search. We limit our literature search to studies published or forthcoming in these
journals between 1998 and March 2019. We then conduct a systematic Web of Science (WoS)
keyword search in the selected journals to identify relevant empirical studies.9 In total, our
systematic keyword search yields 213 unique studies. From these 213 studies, we remove
misclassifications (e.g., studies covering personal tax avoidance) and any non-empirical studies.
In a subsequent step, from the pool of remaining studies, we identify all those dealing with tax
avoidance determinants or consequences. In sum, we identify 114 studies on tax avoidance
determinants and 23 studies on tax avoidance consequences. Table 1 reports their distribution
across the 39 journals. In Figure 1, we provide an overview of recent trends in the tax avoidance
literature, based on studies published in the top accounting, finance, or economics journals over
the last two decades. As becomes apparent, there are a large number of determinant studies. In
addition, a growing number of studies on consequences, tax uncertainty, and real effects have
emerged during recent years. Due to the so far relatively low number of (published) studies on
tax uncertainty and real effects, we refrain from conducting a quantitative synthesis for these
two literature streams. Instead, we discuss them conceptually and account for several recent
working papers on tax uncertainty and the real effects of taxation.
7
See https://www.erim.eur.nl/about-erim/erim-journals-list-ejl/ (accessed: 2019-07-03).
8
The list of journals included in the Scientific Journal Rankings ranking is available at https://www.scimagojr.
com/journalrank.php?area=2000 (accessed: 2019-07-03).
9
Specifically, we run separate WoS search queries with the search words tax avoidance, tax planning, tax
shelter, tax aggressiveness, income shifting, profit shifting, and effective tax rate.

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 Table A.1 in the Online Appendix presents a list of the 114 determinant studies and the
23 consequence studies considered in our quantitative synthesis. We synthesize the empiri-
cal evidence on the determinants of corporate tax avoidance as follows: first, we identify the
main regression tables in the respective studies and select all full specification tests with a tax
avoidance construct as the dependent variable. Then, we collect the coefficient signs and sig-
nificance levels for all the relevant control variables, which capture tax avoidance determinants,
from these full specification tests to determine the frequency of the four possible coefficient
sign–significance combinations (+/Y, +/N, -/Y, and -/N) for all the tax avoidance determinants.
Whenever necessary, we reverse the coefficient signs to ensure directional comparability across
all tax avoidance proxies. For example, if a study originally reports a negative determinant
coefficient and the dependent variable of the regression is a firm’s GAAP ETR, we reverse the
coefficient sign (from negative to positive) to accurately record the positive association between
the respective determinant and tax avoidance. The results of our quantitative synthesis of the
determinants literature are displayed in Figure 2 and Table 3. Table A.3 of the Online Appendix
is a long version of Table 3 and contains a detailed breakdown by measure (e.g., total assets or
total sales as a proxy for firm size). Figure 2 plots the distribution of the aggregated empirical
evidence (+/Y, +/N, -/Y, and -/N) for each determinant and compares it to theoretical predic-
tions. The information displayed in Panel A of Figure 2 and Table 3, as well as our predictions,
are explained in more detail in the next section.
We employ a comparable approach to assess the 23 studies on tax avoidance consequences.
However, for these studies, we solely report the coefficient sign–significance combinations for
the association between the key explanatory variable for tax avoidance and the respective con-
sequence (i.e., the dependent variable of the regression). If necessary, the coefficient signs are
again reversed to ensure directional comparability across tax avoidance measures. The results
of our quantitative synthesis of the tax consequence studies are presented in Panel B of Figure 2
and Table 4. We discuss these results in more detail in Section 6.

4 Determinants of Corporate Tax Avoidance

We identify 32 tax avoidance determinants from the empirical studies included in our quantita-
tive synthesis. In this review, we focus on 20 of these determinants (for an overview of these 20

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determinants, see Figure 2). The selection of these 20 determinants is based on their relevance
and frequency of occurrence in the studies considered. The remaining 12 determinants are listed
in footnote 1, discussed in detail in the Online Appendix, and summarized in Table A.2. To de-
rive a theoretical prediction for the directional link between each determinant and corporate tax
avoidance, we draw on the DJJM framework, introduced in Section 2. Table 2 summarizes the
theoretical predictions for the 20 determinants discussed in detail in this review. In the follow-
ing section, we elaborate our theoretical considerations in more detail and outline how each of
the 20 determinants affects the cost–benefit trade-off in Equation 2.10 We then compare our
theoretical prediction for each determinant to the empirical evidence and discuss avenues for
future tax research.

4.1 Size

The first and most frequently examined determinant of corporate tax avoidance is firm size.
Predictions on the directional association between firm size and corporate tax avoidance can
be motivated by political power theory and political cost arguments. Political power theory
suggests that larger firms are more powerful and could thus succeed in negotiating more favor-
able environmental conditions (e.g., more beneficial tax treatments) (Siegfried, 1972). Larger
firms could, for instance, engage more successfully in corporate political activity (i.e., lobby-
ing), thereby reducing the costs of tax avoidance (see the right-hand side of Equation 2). Hence,
the trade-off in Equation 2 suggests that firms’ incentives to engage in corporate tax avoidance
should increase with firm size (Hill, Kubick, Lockhart, and Wan, 2013; Kim and Zhang, 2016).
However, a contrary prediction can be derived from the political cost argument (Watts and
Zimmerman, 1978). Political costs comprise any wealth transfers that are imposed upon firms
due to their political sensitivity (e.g., taxes, tariffs, or the loss of specific subsidies or gov-
ernment contracts). Larger firms can face more severe public and government scrutiny, due
to higher external visibility (Aichian and Kessel, 1962; Wong, 1988). Based on Equation 2,
we predict that public or government scrutiny could force larger firms to reduce tax avoidance
activities due to their higher political costs of tax avoidance.
In addition, labor economics theory suggests that larger firms could attract more productive
employees, have earlier access to advanced technologies, are better organized and informed,
10
We grouped some determinants into higher-order concepts for our discussion (e.g., corporate governance).

10

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offer better training on the job, and provide higher working standards for their employees (Oi,
1983; Idson and Oi, 1999). Incorporating this into the DJJM framework reveals that larger
firms exhibit a higher tax base (see the left-hand side of Equation 2). The higher the tax base,
the higher the marginal benefit of tax avoidance. Thus, a size-induced increase in productivity
should favor a positive association between tax avoidance and firm size.11
Altogether, the theory seems ambiguous. Consistent with this ambiguity, the empirical evi-
dence is also mixed. Figure 2 and Table 3 reveal that our search identifies 81 studies accounting
for firm size in their main regressions. Among the 213 regressions considered from these 81
studies, 71% obtain statistically significant results, with one-half of the regressions exhibiting
a positive estimate and the other half exhibiting a negative estimate. In terms of measurement,
most studies considered in our analysis use either total assets or the market value of equity to
proxy for firm size (see Table A.3 in the Online Appendix). One explanation for the observed
variation in theoretical predictions and empirical results is that size could be correlated with
several other firm characteristics (e.g., industry membership or operational structure). Thus,
the predicted effects (e.g., the strength of the size-related productivity increase or the impact
of political costs) can be highly context-dependent. This context dependency determines the
sign of the size coefficient and explains the variation in both the theoretical predictions and the
empirical results. Future research that disentangles these different explanations is needed.

4.2 Industry Affiliation and Market Power

Corporate tax avoidance engagement can also be determined by a firm’s industry affiliation and
the intensity of competition in the respective industry. Most empirical tax avoidance studies
account for a potential link between industry affiliation and corporate tax avoidance engagement
by including industry fixed effects.12 Firms of different industries can therefore exhibit varying
productivity levels, wages, or economic growth rates (Krueger and Summers, 1988; Acemoglu
and Zilibotti, 2001). Moreover, firms in different industries can also differ substantially in
11
One argument underlying the assumption that higher labor productivity leads to a higher tax base is that wage
costs w are exogenous. However, in a competitive labor market, this assumption might not hold necessarily.
Instead, more productive workers could demand higher wages in a competitive labor market (e.g., Idson and
Oi, 1999). Thus, larger firms can face substantially higher wage costs w (Brown and Medoff, 1989; Evans and
Leighton, 1989). Higher wage costs can adversely affect the cost–benefit trade-off depicted in Equation 2 and
could thus decrease firms’ incentives to engage in tax avoidance.
12
Of all the regressions that we consider for our quantitative synthesis, 85% include industry fixed effects.
Studies without industry fixed effects usually employ firm fixed effects instead.

11

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terms of their access to new technologies, innovation potential, organizational structure, size,
or required input factor mixes (Idson and Oi, 1999). Further, some industries have access to
beneficial depreciation schemes or tax credits.
Closely related to industry affiliation is the level of within-industry competition (and, thus,
a firm’s relative market power). As Dyreng et al. (2019b) show, the relation between market
power and tax avoidance is ambiguous and depends on the substitutability or complementarity
of labor and capital input at the margin. Hence, no clear theoretical prediction can be derived.
Figure 2 and Table 3 summarize the empirical evidence on the role of market power in cor-
porate tax avoidance engagement. Empirical studies often use the (industry-level) Herfindahl–
Hirschman Index as a proxy for market power (e.g., Kubick, Lynch, Mayberry, and Omer, 2015;
Kim and Zhang, 2016). Altogether, the empirical evidence on market power seems mixed: 25%
of the regressions considered in our synthesis indicate a statistically significant and positive
association between product market power and corporate tax avoidance, but, at the same time,
20% of the regressions suggest a significant negative association. Given the ambiguous theo-
retical prediction derived from Equation 2, the spread in results seems plausible to some extent.
Exploiting (more) exogenous variation in relative elasticities, Dyreng et al. (2019b), however,
find that firms with more market power appear less likely to avoid taxes.

4.3 Performance: Profitability and the Role of Losses

The effect of profitability on the cost–benefit trade-off in Equation 2 is twofold. The straightfor-
ward interpretation is that higher profitability increases the corporate tax base and thus increases
the benefits of tax avoidance. However, at the same time, higher profitability can expose firms
to greater tax authority and investor scrutiny (Bozanic, Hoopes, Thornock, and Williams, 2017),
making tax avoidance more costly. Given this impact on the cost side of Equation 2, the overall
direction of the relation between profitability and tax avoidance is theoretically unclear. Consis-
tent with this theoretical ambiguity, empirical evidence on the association between profitability
and tax avoidance is mixed. While there is a tendency toward a positive link, with 52% of the
regressions reporting a statistically significant and positive relation (e.g., Chyz, 2013; Graham,
Hanlon, Shevlin, and Shroff, 2014), several studies provide evidence of a significant negative
relation between the two constructs (e.g., Kubick et al., 2015; Chen, Schuchard, and Stomberg,

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2019). Of the regressions considered, 30% report a statistically significant and negative associ-
ation, leaving room for more elaborate identification of this relation.
Related to profitability is the consideration of losses. The DJJM framework suggests that
losses decrease firms’ incentives to engage in (future) tax avoidance. Many tax systems allow
firms to offset losses with profits from other periods (e.g., Bethmann, Jacob, and Müller, 2018).
The potential to offset losses with future profits decreases corporate tax liabilities and reduces
firms’ incentives to engage in tax avoidance. Therefore, most empirical studies control for losses
and/or explicitly exclude loss firms from their sample. Most studies that control for corporate
losses use net operating losses (NOLs) as a proxy (as either an indicator variable or a change
measure), since NOLs capture current and accumulated past losses. Figure 2 and Table 3 show
that 45% of the considered regressions document a statistically significant and positive associa-
tion between corporate losses and tax avoidance. Given that the majority of our sample studies
measures tax avoidance through GAAP or Cash ETRs, this finding, at first glance, appears to be
inconsistent with theory. However, one needs to keep in mind that past NOLs have a negative
mechanical effect on Cash ETRs.13 Our analysis, however, interprets lower GAAP and Cash
ETRs as an indication of greater tax avoidance engagement. The regression results of studies
that use ETR-related measures as tax avoidance proxies must therefore be interpreted carefully.

4.4 Growth

Firms’ growth opportunities can also influence the cost–benefit trade-off depicted in Equa-
tion 2. We expect future growth opportunities to be positively associated with future profitabil-
ity (Alchian, 1950). Firms with economic growth opportunities can expand their operations to
new products and markets, thereby potentially increasing corporate output F (K, L) and thus
profit. If growth opportunities are indeed positively associated with profitability, the corporate
tax base and thus firms’ incentives to engage in tax avoidance should increase. Further, growth
firms could have the necessary flexibility to set up corporate structure in a tax-efficient manner
from the start. Due to this higher flexibility in setting up group structures, we expect growth
firms to face lower implementation costs in certain cross-border tax avoidance strategies. Thus,
we expect the incentives to engage in tax avoidance to increase with growth opportunities.
13
Losses reduce ETRs mechanically due to the loss offset potential and the resulting tax base decrease.

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 Another argumentation supporting this theoretical prediction is that growth firms require
cash to finance their investments. Corporate tax avoidance can represent a way to allocate cash
internally. In sum, theory predicts that growth firms can have higher incentives to engage in
tax avoidance, since it allows them to raise necessary investment funds internally. Figure 2 and
Table 3 show that the empirical evidence is ambiguous. At the aggregate level, 37% of the 220
regressions considered find a positive and significant relation between growth opportunities and
corporate tax avoidance, and 20% provide evidence of a statistically significant negative link.
These results are somewhat surprising and calls for more explanation in future research.

4.5 Asset Structure: Tangible and Intangible Assets

A firm’s asset structure represents an integral part of its production function and determines the
respective input factor costs. The firm’s production function dictates whether capital is invested
in tangible or intangible assets (e.g., Hall and Mairesse, 1995). While tangible assets repre-
sent assets with physical substance (i.e., fixed assets, such as factories, machines, or buildings),
intangible assets result from investments in research and development (R&D), software devel-
opment, marketing, human capital, or organizational capital (Danthine and Jin, 2007). Both
tangible capital and intangible capital are restricted in their tax deductibility, since many tax
systems restrict the deductibility of financing costs (Boadway and Bruce, 1984). In addition,
the deductibility of tangible capital is further limited if tax depreciation does not fully capture
economic depreciation. Both frictions are incorporated in the DJJM framework via η < 1.
It follows from the limited deductibility of capital that, all else being equal, the firm with the
higher capital-to-labor ratio will have the higher tax base, resulting in greater incentives to en-
gage in tax avoidance (see the left-hand side of Equation 2). At the same time, tangible capital
is less mobile, resulting in higher costs of tax avoidance. This decreases the net benefits of tax
avoidance (see the right-hand side of Equation 2).
The previous discussion outlines that one cannot derive a clear prediction of the overall
direction of the link between tangibility and corporate tax avoidance. Our synthesis reveals that
tangibility represents an often considered determinant in our sample studies. At the aggregate
level, 58% of the considered regressions obtain statistically significant results, with 38% of all
regressions yielding positive significant results and 20% yielding negative significant results.

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 It is important to note that the cost argument (i.e., the capital immobility argument) holds
primarily for multinational firms. Thus, the sign of the tangibility coefficient depends substan-
tially on the proportion of multinationals included in each study’s sample. When calculating
the development of the proportion of firm–years with foreign pre-tax income in the Compustat
North America database, we find that the proportion doubled from 20% in 1998 to 42% in 2018,
using all firms with non-missing data on earnings before interest and taxes and sales above 1
million USD. This suggests that an increase in firms’ opportunities to shift income.
Further, intangible-intensive firms have more income-shifting opportunities due to the higher
mobility of intangible capital relative to tangible capital (e.g., Klassen and Laplante, 2012;
De Simone, Mills, and Stomberg, 2019). The DJJM framework supports this: assuming that the
costs of shifting intangible capital to tax-favorable jurisdictions are lower, the right-hand side
of Equation 2 suggests increasing tax avoidance incentives (see, e.g., Dischinger and Riedel,
2011). Moreover, returns to investment could be higher for intangible capital than for traditional
tangible capital (Hall, Mairesse, and Mohnen, 2010). This increases the corporate tax base, and
thus firms’ incentives to engage in tax avoidance. In contrast, investments in intangible assets
can be positively correlated with workforce qualification and wage costs w (Nelson and Phelps,
1966; Redding, 1996; Hall et al., 2010). The direct expensing of intangible investments and the
higher wage costs decrease the corporate tax base and thus a firm’s tax avoidance incentives.
Finally, several countries grant R&D tax credits to firms in an attempt to stimulate intangible
investment. Such tax credits can mechanically reduce firms’ Cash ETRs (Hall and van Reenen,
2000; Bloom, Griffith, and van Reenen, 2002). Hence, empirical studies using Cash ETRs to
proxy for tax avoidance potentially interpret such tax credit–induced ETR reductions as tax
avoidance.
The empirical literature reveals substantial variation in the coefficient signs and significance
(see Figure 2 and Table 3). In sum, approximately 40% of the regressions controlling for in-
tangibility do not obtain significant results. Among the 60% providing statistically significant
results, more than two-thirds report a positive relation. One potential reason for these findings
is the mechanical effect of R&D tax credits on ETRs outlined above: R&D tax credits reduce
taxes paid, which could partially explain why some studies observe a negative association with

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tax avoidance. Disentangling such a mechanical effect from firms’ actual investment in tax
avoidance represents an important challenge for future research.14

4.6 Capital Structure

Many tax avoidance studies control for leverage without providing a detailed theoretical jus-
tification for its inclusion. The DJJM framework suggests that an increase in debt financing
can increase the parameter η, since cost of debt is tax deductible (Miller, 1977). In addition,
the use of debt financing could also increase the cost of capital r due to higher credit risk. In
sum, debt financing reduces the a firm’s taxable income (i.e., the left-hand side of Equation 2)
and, thereby, incentives to avoid taxes. Prior work has stressed this potential substitution effect
between debt financing and corporate tax avoidance (DeAngelo and Masulis, 1980; Graham,
Lemmon, and Schallheim, 1998; Graham and Tucker, 2006).
While theory suggests a negative association between debt and tax avoidance, the results of
our quantitative synthesis reveal mixed empirical evidence. In total, 188 regressions account
for leverage. Thereof, 39% report a negative association, but only 18% obtain significant neg-
ative results (e.g., Lisowsky, 2010; Bird, Edwards, and Ruchti, 2018). A total of 43% of the
regressions obtain insignificant results for leverage. In contrast, 39% of the regressions report a
statistically significant and positive association between leverage and tax avoidance, suggesting
that debt and tax avoidance function, rather, as complements. One potential explanation is that
an increase in leverage could be accompanied by a decline in corporate transparency. Examin-
ing this potential explanation could represent a fruitful direction for future research to create a
better understanding of the relation between financial leverage and tax avoidance.

4.7 Financial Constraints

A firm’s decision to engage in tax avoidance can also depend on financial constraints (Law and
Mills, 2015; Edwards, Schwab, and Shevlin, 2016). Financial constraints represent frictions
that prevent a firm from funding its desired investments (Fazzari, Hubbard, and Petersen, 1988;
Kaplan and Zingales, 1997). Put differently, financially constrained firms face higher costs
14
About 50% of the studies in our sample use R&D expenses to operationalize intangibility (e.g., Mills, Nutter,
and Schwab, 2013), while the other half employs intangible assets to measure intangibility (e.g., Khurana and
Moser, 2013; Tang, Mo, and Chan, 2017). Some studies include both proxies (e.g., De Simone et al., 2019).
Our Online Appendix (Table A.3) shows that the results for scaled R&D expenses are predominantly positive and
statistically significant, whereas the results on intangible assets seem to be evenly split among all four coefficient
categories.

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of external financing to fund investments. In a broader sense, tax avoidance can serve as an
alternative internal financing tool. One can incorporate these considerations into the DJJM
framework through a reduction in r for tax-avoiding firms. The framework predicts that the
reduction in r increases the tax base and thus produces additional incentives for tax avoidance
engagement, as shown empirically (Law and Mills, 2015; Edwards et al., 2016).
While Law and Mills (2015) and Edwards et al. (2016) broadly examine financial con-
straints, Dyreng and Markle (2016) provide indirect evidence that the location of the financial
constraints seems to matter. One of their key takeaways is that some tax avoidance strategies
(i.e., income shifting to foreign countries) will become less attractive for firms if they face do-
mestic financial constraints. If such firms need to repatriate foreign income to cover domestic
financing needs internally, the repatriation will expose them to additional tax costs (e.g., Foley,
Hartzell, Titman, and Twite, 2007; Hanlon, Lester, and Verdi, 2015). Applying the logic of
Equation 2, the repatriation of foreign income likely increases the marginal costs of corporate
tax avoidance C 0 (A). Thus, tax planning strategies that involve cross-border income shifting
are less desirable for firms that face domestic financial constraints than for firms with foreign
financial constraints (which would benefit from income shifting).
The empirical evidence in Table 3 shows that 33 studies control for financial constraints in
their main regressions. At the aggregate level, 64% of the estimates are significant, and 45%
of all regressions report a positive and significant association, consistent with the work of Law
and Mills (2015). Given the preceding discussion of the role of domestic constraints, the large
proportion of regressions suggesting a positive association between financial constraints and tax
avoidance seems to be more in line with a general view of financial constraints, and less in line
with the arguments raised by Dyreng and Markle (2016).

4.8 Foreign Operations

Another determinant of corporate tax avoidance is the amount of a firm’s foreign operations.
Foreign operations are, of course, to some extent correlated with other firm characteristics such
as firm size. However, since foreign operations can determine the general availability of cross-
border tax avoidance opportunities, we discuss them separately. Firms with foreign operations
in low-tax jurisdictions are able to set up beneficial tax structures in these countries at lower

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cost. Equation 2 therefore predicts that firms with foreign operations can engage in more tax
avoidance than purely domestic firms due to the lower implementation costs of cross-border tax
avoidance activities. Our quantitative synthesis allows us to examine the empirical evidence
at a broader level. As Table 3 indicates, most regressions in the 71 identified studies report a
positive relation between foreign activity and corporate tax avoidance. Of all the regressions,
46% (25)% report statistically (in)significant and positive associations. Thus, as depicted in
Figure 2, the aggregated empirical evidence in the studies considered is consistent with the
prediction of lower tax avoidance costs for firms with foreign operations resulting in more tax
avoidance.

4.9 Corporate Governance and Management Practices

Over the last decade, the tax literature has moved from a purely firm-centered perspective to-
ward a more manager-oriented perspective on tax avoidance (Wilde and Wilson, 2018). Dyreng,
Hanlon, and Maydew (2010) were the first to explicitly account for the role of top executives,
suggesting that they influence corporate tax avoidance activities by setting the strategic tone at
the top. Similarly, ownership characteristics appear to matter because of monitoring incentives
(Desai and Dharmapala, 2006). The DJJM framework does not explicitly account for principal–
agent problems or manager characteristics. However, despite the lack of explicit consideration
of principal–agent mechanisms, governance and management effects can still indirectly enter
Equation 2 via productivity effects or by affecting the costs of corporate tax avoidance: properly
aligned incentive plans, a good fit between management and firm characteristics, as well as well-
designed governance and ownership structures can increase productivity. Higher productivity
increases the tax base and thus the benefits of tax avoidance. At the same time, external stake-
holders might be able to better monitor the managers of firms with good governance. Hence,
potential engagement in tax avoidance activities can be easier detected from the outside, which
increases the costs of corporate tax avoidance.
Motivated by the call of Hanlon and Heitzman (2010) for more research on ownership struc-
ture and corporate tax avoidance, several studies have examined the relation between these two
constructs during the last decade such as institutional ownership.15 Our quantitative synthesis
provides mixed empirical evidence: 31% of the regressions controlling for institutional owner-
15
Other ownership types (e.g., family ownership) are discussed in the Online Appendix.

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ship report a statistically significant and negative association, whereas 44% document a statisti-
cally significant positive relation between institutional ownership and corporate tax avoidance.
One key challenge in testing the association between institutional ownership and tax avoid-
ance, potentially explaining the mixed empirical evidence, is that institutional ownership is
endogenous. We call for future research with compelling research designs to overcome these
endogeneity concerns.
The recent literature further accounts for executives’ and board characteristics. We discuss
this literature in the Online Appendix and focus on executive compensation, given its direct link
to governance. The optimal incentive alignment between managers and shareholders represents
a core challenge for firms. One way to align incentives and encourage managers to maximize
firm value is via executive compensation (Smith and Watts, 1982). Such high-powered incen-
tives can motivate managers to reduce rent extraction and to engage in more tax avoidance, both
potentially increasing shareholder value (Desai and Dharmapala, 2006). However, due to inter-
actions between tax avoidance activities and managerial rent diversion, Desai and Dharmapala
(2006) argue that the effect of high-powered incentives on corporate tax avoidance is ambigu-
ous. We identify 21 studies accounting for executive compensation incentives in our sample.
Our analysis shows that the empirical evidence on executive compensation incentives is mixed.
The dispersion in the empirical results could stem from potential feedback effects, as stressed
by Desai and Dharmapala (2006), or apparent in the sample specifics of the respective studies
(e.g., Gaertner, 2014). Finally, there is a large and growing literature on the individual charac-
teristics of executives and their relation to tax avoidance. For example, personal tax aggressive-
ness (Chyz, 2013; Hjelström, Kallunki, Nilsson, and Tylaite, 2019), managerial overconfidence
(Kubick and Lockhart, 2017), top executives’ military experience (Law and Mills, 2017), and
managerial ability (Koester, Shevlin, and Wangerin, 2017) are related to tax avoidance.

4.10 External Environment of the Firm

The quality of a firm’s external information environment can also determine corporate tax avoid-
ance engagement. External information quality depends on the amount, precision, and avail-
ability of externally generated firm information. If external information quality is high, corpo-
rate decision making should be more transparent and accessible for external stakeholders. The

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higher transparency is likely accompanied by a higher probability of the detection of corporate
tax avoidance engagement. We therefore predict that the costs of corporate tax avoidance in-
crease with higher external information quality. Following Equation 2, this increase in costs
should decrease incentives to engage in tax avoidance. Figure 2 and Table 3 display the empir-
ical evidence on the relation between external information quality and corporate tax avoidance.
In total, 20 studies account for external information quality in 43 regressions (e.g., Chen, Chiu,
and Shevlin, 2018b). The proxy choices employed by these studies are very broad and range
from coverage and scrutiny measures to more indirect external information quality proxies,
such as the volatility of the return on assets, cash flows, or sales. The results of our analysis
further show that the aggregated empirical evidence seems to be mixed: half of the regressions
yield significant results, with 28% of the estimates being positive and significant and 19% being
negative and significant.

4.11 Book–Tax Conformity and Financial Reporting Incentives

Under book-tax conformity (BTC), income reported for tax purposes and income reported for
financial reporting purposes should not differ. If the level of BTC is high, firms must determine
the trade-off between whether they manage earnings upward for financial reporting reasons and
accept higher tax payments and whether they engage in tax avoidance, report lower earnings,
and potentially face higher capital market pressure. Hence, BTC increases the costs of corporate
tax avoidance and decreases firms’ incentives to engage in such activities. The case is more
difficult for jurisdictions with low BTC (e.g., the United States). Mills (1998) provides evidence
that large book-tax differences of U.S. firms increase Internal Revenue Service (IRS) attention.
She argues that large differences between financial reporting income and tax income have a
signaling effect to investors and tax authorities, since these differences reveal that the firm’s
actual income is either understated by tax reporting or overstated by financial reporting. Thus,
financial reporting incentives can increase tax avoidance costs. Based on the framework of
Dyreng et al. (2019b), we predict that lower BTC should result in less tax avoidance.
This prediction is not fully consistent with the empirical results in our sample studies. In
total, 34 studies from our sample control either for BTC or financial reporting incentives in their
analysis of corporate tax avoidance. As shown in Figure 2 and Table 3, the majority (i.e., 64%)

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of the regressions considered report a statistically significant and positive link between financial
reporting incentives and corporate tax avoidance. A common explanation is that the signaling
role of book–tax differences might not sufficiently deter aggressive behavior (Frank, Lynch, and
Rego, 2009). Hence, the link seems to depend on the degree of BTC, which, in the case of the
U.S., is low. However, most studies in our sample rely on U.S. data. Thus, further international
evidence is needed to better understand the mechanisms governing the link between financial
reporting incentives and corporate tax avoidance.

4.12 Tax System Characteristics

We next discuss how various characteristics of a country’s tax system shape tax avoidance. First,
we focus on the most salient tax policy tool: the statutory corporate tax rate. Intuitively, a higher
tax rate results in higher tax payments and thus increases the benefits of tax avoidance. Most
regressions considered in our quantitative synthesis (i.e., 77%) report a statistically significant
and positive association between statutory tax rates and corporate tax avoidance engagement
(see Figure 2 and Table 3). Most studies controlling for tax rates focus on U.S. multinationals
(e.g., Klassen and Laplante, 2012; De Simone et al., 2019). However, multinationals from
other jurisdictions (e.g., European countries) operate under different tax regimes, which may
have changed substantially over time (Alexander, De Vito, and Jacob, 2019; Brühne, Jacob, and
Schütt, 2019). Future research accounting for these changes is needed.
Other tax system characteristics can also affect the cost–benefit trade-off depicted in Equa-
tion 2. Countries differ in the treatment of foreign profits: some countries employ a worldwide
tax system that taxes resident corporations based on their world income (e.g., the United States
until 2017). Other countries follow a territorial system, implying that income sourced in a
specific country will also induce a tax liability there (e.g., France). The respective tax system
choice, worldwide versus territorial, affects tax avoidance incentives. Generally, the after-tax
income derived from foreign investment is expected to be higher if the parent firm resides in a
country with a territorial system, relative to a parent in a worldwide tax system country. The
cost–benefit trade-off of Equation 2 suggests that multinationals located in a country with a
territorial tax system should have higher incentives to engage in cross-border profit shifting to
low-tax countries, since their profits are not subject to additional taxation upon repatriation. Fig-

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ure 2 and Table 3 show that, on average, the empirical evidence is consistent with this prediction
(e.g., Markle, 2016).
Further, several countries have introduced a wide range of anti-tax avoidance rules to pre-
vent firms’ attempts to shift profits to low-tax countries (Alexander et al., 2019; Brühne et al.,
2019). From a firm’s perspective, the introduction or tightening of anti-tax avoidance rules can
affect the cost–benefit trade-off in Equation 2 in an unfavorable way: stricter anti-tax avoidance
rules increase the implementation costs of corporate tax avoidance activities and thus decrease
a firm’s incentives to engage in them. Based on the search criteria employed in our quantita-
tive synthesis, only a small set of studies examining the role of specific anti-tax avoidance rules
(e.g., controlled foreign corporation (CFC) rules or thin-capitalization regimes) on corporate tax
avoidance engagement can be identified. All these studies are published in economics journals.
Voget (2011), for instance, provides empirical evidence suggesting that CFC rules in a coun-
try encourage the relocation of corporate headquarters to other countries. Buettner, Overesch,
Schreiber, and Wamser (2012) find that thin-capitalization regimes lead to substantial decreases
in inter-company debt, which curbs corporate profit shifting.
Another important characteristic of a country’s tax system is tax enforcement (e.g., Hoopes,
Mescall, and Pittman, 2012). Stricter tax enforcement can increase the detection probability of
tax avoidance activities and thus expose tax-avoiding firms to higher costs (e.g., penalties or
interest payments). Consistent with Equation 2, we thus expect firms’ tax avoidance incentives
to decrease with stricter tax enforcement. We consider 18 regressions from nine studies in our
quantitative synthesis. Figure 2 and Table 3 illustrate that the empirical results support theory
at the aggregate level: 72% of all relevant regressions document a statistically significant and
negative association between tax enforcement and corporate tax avoidance. However, despite
the growing body of literature on tax enforcement, appropriate large-scale tax enforcement data
for multiple countries and sufficiently long sampling periods are still lacking.

4.13 Other (Institutional) Country Characteristics

Besides a country’s tax system, several other institutional country characteristics can affect the
cost–benefit trade-off depicted in Equation 2. For example, national labor regulation can deter-
mine labor costs w and, thus, indirectly, also the tax avoidance engagement trade-off (De Vito

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et al., 2019). Further, public and regulatory scrutiny can, to some extent, be driven by the eco-
nomic situation and the cultural norms of a country. Table 3 shows that, in sum, only seven
studies in our sample control for institutional country characteristics in their regressions. The
tax literature still lacks a detailed theoretical and empirical understanding of how the institu-
tional environment shapes corporate tax avoidance.

4.14 Other Tax Avoidance Determinants

In the Online Appendix, we discuss 12 other determinants of corporate tax avoidance identified
from prior empirical work. These additional determinants comprise, for example, the role of
unionization (Chyz, Leung, Li, and Rui, 2013), the internal information environment (Galle-
more and Labro, 2015), political activity (Hill et al., 2013; Brown, Drake, and Wellman, 2015),
and intermediaries such as banks (Gallemore, Gipper, and Maydew, 2019), auditors (Lisowsky,
2010; Hoopes et al., 2012; Donohoe, 2015; De Simone et al., 2019), and peer firms (Brown,
2011; Brown and Drake, 2014; Bayar, Huseynov, and Sardarli, 2018; Bird et al., 2018). We
refrain from discussing these 12 determinants in detail here to keep the paper’s length moderate
and to ensure a focus on the most important determinants examined by empirical work.

4.15 Summary of the Determinants Discussion

Our quantitative synthesis outlines 32 determinants of corporate tax avoidance. Of these, 20

determinants have been discussed in detail in this review. In sum, an unambiguous directional
prediction can be derived for 16 of the original 32 determinants (e.g., leverage, growth oppor-
tunities, and financial reporting incentives). For the other 16 determinants, both the benefits
and costs of tax avoidance are influenced in such a way that the resulting effect is ambigu-
ous (e.g., intangible assets or market power). Among the 16 determinants with unambiguous
predictions, empirical evidence is consistent with theory for nine determinants (e.g., growth
opportunities, foreign operations, and financial constraints), but mixed for the other seven de-
terminants (losses, leverage, the external information environment, executive skills, the internal
information environment, financial reporting incentives, and peer tax practices). For six of the
16 determinants with ambiguous theoretical predictions, there appears to be an empirical ten-
dency toward one direction (profitability, tangible assets, intangible assets, family ownership,
executive incentives, and executive characteristics). For the other 10 determinants, theory and

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empirics are ambiguous. We call for future research with regard to areas where theory is not
supported by empirical evidence or where theory is ambiguous but the empirical results seem
to favor one direction. Ideally, researchers can strive for more compelling research designs to
isolate the effects and the respective channels.

5 Risk and Uncertainty of Corporate Tax Avoidance

This section discusses the role of uncertainty in tax avoidance. In general, managers incorporate
and weigh all the benefits and costs to decide on the optimal level of corporate tax avoidance.
However, the costs and benefits of tax avoidance can be uncertain: Due to ambiguities and
complexities inherent in the tax code, managers’ and tax authorities’ evaluations of a firm’s tax
liability can diverge. In addition, the assessment of the sustainability of specific tax positions
upon audit can differ. Hence, firms can face the uncertainty of additional cash demands by tax
authorities (Hanlon, Maydew, and Saavedra, 2017; Dyreng, Hanlon, and Maydew, 2019a).
There is a growing literature on whether and how tax uncertainty affects tax avoidance. The
survey by Graham et al. (2014) provides early evidence suggesting that managers incorporate
tax uncertainty into their decision making. Guenther, Wilson, and Wu (2019) show that the
percentage of uncertain tax avoidance is not higher for firms engaging in relatively more tax
avoidance. In contrast, Dyreng et al. (2019a) document a positive relation between cash ETRs
and the level of firms’ uncertain tax avoidance. The varying results can be attributable to dif-
ferences in measuring tax uncertainty. Many studies use measures related to unrecognized tax
benefits (UTBs), disclosed under Financial Interpretation No. 48 (FIN 48), to proxy for tax
uncertainty. UTB reserves represent the corporate estimate of potential additional tax expenses
that a firm expects to owe the tax authorities after audit (Blouin, Gleason, Mills, and Sikes,
2007; Towery, 2017). Studies employing UTB-related measures define tax uncertainty as the
difficulties in applying ambiguous tax law to corporate facts and the resulting uncertainty about
future tax payments (Mills, Robinson, and Sansing, 2010; Lisowsky, Robinson, and Schmidt,
2013). Consistent with this definition, Ciconte, Donohoe, Lisowsky, and Mayberry (2016) pro-
vide evidence that UTBs are indeed predictive of firms’ future tax cash outflows. Further, Mills
et al. (2010) find a positive association between governmental scrutiny and disclosed UTBs.
They argue that governments consider disclosed UTBs a signal of firms’ uncertainty about their

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tax return positions. Several studies on real effects also indirectly strengthen the construct valid-
ity of UTB-related tax uncertainty measures. Hanlon et al. (2017), for example, show that firms
facing higher tax uncertainty hold a higher cash balance to cover potential future tax expenses.
Therefore, firms with high tax uncertainty tend to postpone large capital investments and invest
less (Jacob, Wentland, and Wentland, 2018).
However, we note that several studies emphasize that managers can exercise substantial fi-
nancial reporting discretion in their FIN 48 disclosures, potentially decreasing the informative-
ness of UTBs regarding firms’ actual level of tax uncertainty (Lisowsky et al., 2013; De Simone,
Robinson, and Stomberg, 2014). Yet, so far, the literature still lacks a clear understanding of the
definition, scope, and differentiation of tax uncertainty and tax risk (Wilde and Wilson, 2018;
Guenther et al., 2019). Indeed, two recent studies advocate a broader tax risk notion. Neuman,
Omer, and Schmidt (2019) construct a six-item tax risk score based on the tax risk management
framework of a Big Four audit firm. They use this innovative measure to validate UTB-related
tax uncertainty measures. Specifically, they document that their tax risk score explains a sub-
stantial part of the variation in UTBs. Brühne and Schanz (2019) add to this by arguing the
need to examine practitioners’ tax risk understanding more directly. By conducting interviews
with 40 experts involved in corporate tax risk management (e.g., CFOs, tax directors, tax con-
sultants), they find that tax risk seems to be a highly context-dependent construct and that tax
risk definitions differ between firm insiders and outsiders.
The previous discussion shows that the literature has not settled on a commonly accepted
tax uncertainty proxy, particularly one that is also applicable to firms not reporting under U.S.
GAAP. Thus, there is still room for future research on defining and measuring tax uncertainty in
a way that allows for a better understanding and categorization of firms’ tax avoidance decisions.

6 Consequences of Corporate Tax Avoidance

Why do researchers care so much about the determinants of tax avoidance? As discussed in this
section, corporate tax avoidance can have substantial consequences on firm decisions. Hence,
it is important to understand not only the determinants (Section 4), but also the potential conse-
quences of corporate tax avoidance. As described in Section 3, we also conduct a quantitative
synthesis of the empirical evidence on tax avoidance consequences. We identify four constructs

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in our analysis: transparency, cost of capital, cost of debt, and firm value. The results are
summarized in Panel B of Figure 2 and Table 4.

6.1 Transparency

The literature argues that tax avoidance can decrease the transparency of a firm’s operations for
at least three reasons. First, tax avoidance renders a firm’s actual operations less transparent
(Desai, 2005). Second, the ability to increase after-tax profits can obscure a firm’s actual op-
erating performance. Third, the use of tax havens can enable a firm’s management to conceal
insider trading activities, for example, due to beneficial bank secrecy policies in tax havens.
These arguments suggest a negative association between tax avoidance and transparency.
Figure 2 and Table 4 show that the empirical evidence seems to support this prediction. Of
the 31 regressions, 81% report a statistically significant and negative association between tax
avoidance and transparency. The corporate transparency proxies in these studies correspond
to the proxy choices employed by financial reporting and disclosure studies (e.g., Healy and
Palepu, 2001). Despite their popularity, most of these proxies capture rather the result of trans-
parency than the transparency construct itself, and thus measure transparency only indirectly.
For instance, Kim, Li, and Zhang (2011) suggest that corporate tax avoidance is positively
related to a firm’s stock price crash risk, which indirectly proxies for a decline in corporate
transparency. Chung, Goh, Lee, and Shevlin (2019) use insider purchase probability, while
Balakrishnan, Blouin, and Guay (2019) use analyst pre-tax forecast errors as a proxy for trans-
parency. A few studies strive to examine directly how corporate tax avoidance affects specific
information channels. Ayers, Jiang, and Laplante (2009) analyze the relation between aggres-
sive tax avoidance and tax income’s ability to truthfully depict economic income. Donohoe and
Knechel (2014) find that tax-aggressive firms pay higher audit fees. Thus, aggressive tax avoid-
ance could aggravate auditors’ proper assessment and understanding of clients’ tax positions.
In addition, Chen, Hepfer, Quinn, and Wilson (2018a) report that cross-border income shifting
can curb investors’ ability to identify the actual geographic location of income generation.

6.2 Cost of Capital and Cost of Debt

The link between tax avoidance and cost of capital is not trivial. Basic predictions on the
link between tax avoidance and the cost of equity capital can be derived from the model of

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information quality and cost of equity capital by Lambert, Leuz, and Verrecchia (2007) (see,
e.g., Goh, Lee, Lim, and Shevlin, 2016). According to Lambert et al. (2007), tax avoidance can
affect cost of equity capital via two channels: first, via its effect on a firm’s expected future cash
flows and, second, via its effect on the covariance between a firm’s cash flows and other firms’
cash flows. If tax avoidance increases after-tax cash flows without a simultaneous offsetting
increase in the covariance, cost of equity capital will decrease (Lambert et al., 2007). Corporate
tax avoidance strategies also affect firm fundamentals, for example, the intensity of foreign
operations or R&D. This, in turn, can affect the covariance of a firm’s cash flows with the market
and alter the level of business risk. However, it is difficult to predict whether tax avoidance
should increase or decrease the covariance of a firm’s cash flows with the market. Sikes and
Verrecchia (2016) propose that the covariance can increase when more firms in an industry
adopt similar tax avoidance activities. In this case, the cost of capital is raised for all firms in
that industry.
Tax avoidance can also affect the cost of debt. DeAngelo and Masulis (1980) predict that
firms with large non-debt tax shields (e.g., tax shelters) have lower incentives to use debt for
financing. Thus, there is a potential substitution between tax avoidance and debt financing.
However, since tax avoidance decreases the benefits of debt financing and affects the cost of eq-
uity capital, it is difficult to predict whether these effects will lead to a lower or higher weighted
cost of capital. Thus, theory on the link between tax avoidance and cost of capital is ambiguous.
Our analysis reveals clear tendencies for both the association between tax avoidance and the
cost of capital and the association between tax avoidance and the cost of debt. With regard to
the cost of capital, 83% of the 23 regressions in the analysis suggest a statistically significant
and positive association between tax avoidance and the cost of capital. With regard to the cost of
debt, 91% of the 11 regressions considered in our analysis depict a statistically significant and
negative association. For example, Hasan, Hoi, Wu, and Zhang (2014) find that tax-aggressive
firms incur higher loan spreads. Similar evidence is provided by Platikanova (2017), who finds
that tax avoidance is linked to shorter debt maturities. Both studies thus suggest that lenders
perceive tax avoidance as inherently risky.
If tax avoidance is indeed risky, it can also affect the cost of equity capital. Goh et al. (2016)
examine the relation between tax avoidance and the implied cost of equity capital and find a

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significant negative relation. To some extent, this result is inconsistent with the interpretations
proposed by Hasan et al. (2014) and Platikanova (2017). Goh et al. (2016) suggest that investors
could, in fact, demand lower returns, since cash tax savings already generate higher expected
cash flows. Consistent with Hasan et al. (2014), Brooks, Godfrey, Hillenbrand, and Money
(2016) report a positive association between tax avoidance and capital asset pricing model betas
in the U.K. setting. Heitzman and Ogneva (2019) propose that there is an industry-based risk
premium to corporate tax avoidance. Consistent with the model of Sikes and Verrecchia (2016),
Heitzman and Ogneva (2019) provide empirical evidence suggesting that this risk premium
applies to all firms in an industry, independent of their actual tax avoidance engagement.

6.3 Firm Value

Whether tax avoidance influences cost of capital is closely related to the effect of tax avoidance
on firm value. Tax avoidance can affect firm value directly via higher future after-tax cash flows,
agency conflicts (Desai and Dharmapala, 2009), or reputational effects (Hanlon and Slemrod,
2009). Hanlon and Slemrod (2009), for example, find a negative stock market reaction to news
on firms’ tax shelter involvement, consistent with reputational tax concerns adversely affecting
firm value. Desai and Dharmapala (2009) suggest that aggressive tax avoidance can lead to
agency costs. In poorly governed firms, management’s opportunities to extract rents from in-
vestors increase with reduced transparency. For such firms, tax avoidance can thus be negatively
associated with firm value. Consistent with their theory, Desai and Dharmapala (2009) find a
positive relation between tax avoidance and Tobin’s Q. However, the results only hold for firms
with a high percentage of institutional ownership.
When examining the empirical evidence on firm value and tax avoidance, we find mixed
results (Figure 2 and Table 4). This is consistent with the difficulties in deriving a clear theoret-
ical prediction for the overall relation between tax avoidance and firm value. A valuation model
recently developed by Jacob and Schütt (2019) based on the framework of Feltham and Ohlson
(1995) stresses the necessity of considering not only the level, but also the uncertainty of tax
avoidance in a composite measure to fully assess the firm value consequences of corporate tax
avoidance.16 Obtaining a better understanding of the relation between tax avoidance and firm
16
Related to the notion of tax uncertainty driving firm value, Mescall and Klassen (2018) show that transfer
pricing risk is negatively associated with takeover premiums in merger and acquisition deals.

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value is important, since firms would not engage in large-scale tax avoidance activities if these
did not create value. This notion is consistent with shareholder value theory. Future tax research
can add to this by explicitly investigating different tax avoidance strategies and their potential
interdependencies. Moreover, future research should aim to theoretically and empirically link
the results on firm value and cost of capital.

7 Real Effects of Taxation

In this section, we expand our review and touch upon the literature on the real effects of taxation
(e.g., on corporate investment). As outlined in Section 2, tax policy tools (e.g., τ and η) affect
corporate investment decisions. The statutory tax rate τ can affect corporate investment if the
costs of capital investment are not fully deductible for tax purposes (η < 1). Moreover, explicit
rules dealing with the tax deductibility of financing costs or specific depreciation schemes can
affect corporate investment. In the following, we discuss these two policy tools (statutory tax
rates and tax deductibility) in more detail. In Section 7.3, we expand our discussion to the role
of taxes paid by other stakeholders.

7.1 Investment and Statutory Corporate Tax Rates

There is a longstanding literature, going back to Hall and Jorgenson (1967), on how corporate
taxation can affect corporate investment, with many attempts to establish a causal link between
statutory corporate tax rates and investment (e.g., Summers, 1981; Feldstein, Dicks-Mireaux,
and Poterba, 1983; Cummins, Hassett, and Hubbard, 1996; Djankov et al., 2010). Since private
sector investment is highly relevant for overall economic growth, understanding the effect of tax
rates on corporate investment is crucial. Recently, Patel, Seegert, and Smith (2017) and Giroud
and Rauh (2019) have exploited arguably exogenous variation in tax rates to obtain investment
elasticity estimates relative to the corporate tax rate. Whereas Giroud and Rauh (2019) estimate
elasticities between −0.4 to −0.5, Patel et al. (2017) report an elasticity of −0.21.
While prior literature mainly focuses on the average elasticity of investment toward cor-
porate tax rates, several open questions remain. For example, it is not clear whether and how
statutory corporate tax rates affect employment levels. Early evidence in this regard is provided
by Ljungqvist and Smolyansky (2018). The effect of corporate taxes on labor investment likely
depends on the complementary or substitutive relation between capital K and labor input L.

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Future research is needed to establish this link theoretically and empirically. Moreover, since
the costs associated with capital investment are firm specific, whereas tax law is typically ap-
plied consistently across all firms, there is potential cross-sectional variation in the effect of tax
rates on investment. This variation is not well understood and future research is needed.

7.2 Investment and the Corporate Tax Base

Tax policy can also affect corporate investment via the definition of the tax base. For example,
if policy makers introduce bonus depreciation rules, Equation 3 suggests that investment levels
increase as η increases. Empirical work supports this prediction: the introduction of a bonus
depreciation scheme increases the level of corporate investment (e.g., House and Shapiro, 2008;
Zwick and Mahon, 2017; Ohrn, 2018). However, at the same time, recent evidence suggests
that bonus depreciation comes at the cost of lower investment quality (Eichfelder, Jacob, and
Schneider, 2019). Loss offset restrictions also determine the scope of the corporate tax base.
Many tax systems treat profits and losses asymmetrically and do not allow for an immediate full
loss offset (e.g., Auerbach, 1986). One potential effect of limited loss offset opportunities is a
reduction in corporate investment and risk taking (Ljungqvist, Zhang, and Zuo, 2017; Bethmann
et al., 2018; Langenmayr and Lester, 2018).
Additionally, most tax systems allow firms to deduct interest on debt, while cost of equity
capital is typically not deductible. This strengthens corporate incentives to increase leverage
(Heider and Ljungqvist, 2015) and to shift profits to low-tax countries (Desai, Foley, and Hines,
2004; Huizinga, Laeven, and Nicodeme, 2008). To curb such profit-shifting activities, coun-
tries have implemented thin-capitalization rules limiting the tax deductibility of internal debt
(Buettner et al., 2012). Some countries have even expanded these rules to external debt, thereby
reducing the deductibility of the cost of debt financing (e.g., the 2017 U.S. Tax Reform). Ac-
cording to the DJJM framework, a lower deductibility of the cost of financing reduces corporate
investment (see Equation 3). Further, only a few countries, such as Belgium, allow notional
interest deductions for equity, to reduce tax-induced investment distortions. While Hebous and
Ruf (2017) examine such rules in the location decisions of multinational firms, there is little
empirical evidence on how these rules affect domestic firms or investment levels.

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7.3 Other Taxes

So far in this review, we have exclusively discussed the role of corporate income taxation. How-
ever, other tax types can also affect corporate decision making. For the sake of completeness,
we briefly touch upon two additional taxes, namely, shareholder taxes and consumer taxes, and
outline their potential effects on corporate investment. Theoretical work on the effect of share-
holder taxation (i.e., dividend taxes) on firm decisions provides conflicting predictions (e.g.,
Harberger, 1962, 1966; Feldstein, 1970; King, 1977; Auerbach, 1979; Chetty and Saez, 2010).
These conflicting results could be attributable to two core differences in assumptions: (1) the
prevalence of cash-rich versus low-cash firms in the economy and (2) the presence or absence
of agency conflicts between shareholders and managers.
The so-called old view focuses on firms requiring external equity to invest. Dividend taxa-
tion thus negatively affects corporate investment (Harberger, 1962, 1966; Feldstein, 1970). In
contrast, the so-called new view considers cash-rich firms, which are characterized by the abil-
ity to fund profitable investments internally. In this case, dividend taxes do not affect corporate
investment behavior (King, 1977; Auerbach, 1979). Chetty and Saez (2010) go one step fur-
ther and suggest that higher dividend taxes can lead to additional—yet inefficient—corporate
investment. Consistent with the framework of Chetty and Saez (2010), Becker et al. (2013) and
Alstadsæter et al. (2017) show that dividend taxes affect the allocation of capital across firms:
higher dividend taxes increase (decrease) the investment of firms with internal funds (external
equity needs). In addition, other studies suggest no overall effect of dividend taxation on in-
vestment (e.g., Yagan, 2015). However, whether these studies’ findings are indeed transferable
to other markets (e.g., emerging markets) is an open empirical question.
Taxes paid by external stakeholders also determine corporate investment decisions. For ex-
ample, consumption taxes, which represent the most important revenue source for many coun-
tries, can affect corporate profitability. Although consumption taxes are collected by firms on
behalf of their consumers, prior literature shows that such taxes can drive a wedge between the
price that is paid by consumers and that which is received by firms (e.g., Poterba, 1996; Kenkel,
2005; DeCicca, Kenkel, and Liu, 2013). Consequently, firm profitability and corporate invest-
ment can decline. Jacob et al. (2019) show that consumption taxes, such as the value-added

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tax, adversely affect investment and that this effect is a function of consumer demand elasticity.
Future research should examine the real effects of other tax types on corporate decision making.

8 Directions for Future Research

While we already pointed out directions for future research above, we now provide a more
structured overview of promising research avenues. Specifically, we develop a comprehensive
and structured tax research agenda, focusing on four core areas: (1) the role of microeconomic
dynamics in determining corporate tax avoidance, (2) the role of stakeholders in corporate tax
avoidance and real decisions, (3) the real effects of corporate tax avoidance, and (4) measure-
ment issues inherent in the tax avoidance literature. To address open research questions in
these four areas, we call for compelling research designs and settings with sufficient variation.
Moving away from primarily U.S.-focused tax research can foster the stronger identification of
empirical results. Moreover, international tax (accounting) researchers should be able to benefit
from in-depth understanding of the nature of the variation examined in such settings.

8.1 Microeconomic Dynamics and Corporate Tax Avoidance

The need to further examine the role of microeconomic dynamics that shape corporate tax
avoidance can be motivated by DJJM framework. This framework provides a succinct yet pre-
cise way of expressing the benefits and costs of profit-maximizing tax avoidance. Our literature
review, however, shows that the theoretical roles assigned to the properties of the corporate pro-
duction function F (K, L) and, most notably, corporate productivity are not well understood.
Productivity determines input and output factor levels and can thus have a first-order impact on
a firm’s tax base. Hence, shocks to productivity can substantially affect firms’ tax avoidance
incentives. However, assessing this potential effect is not trivial, since its direction depends sub-
stantially on the input factors affected and the relative elasticity of input factor costs. We plead
for stronger interdisciplinary exchange between the disciplines of economics and accounting. A
more constructive discourse between their literatures can likely result in valuable new insights.
At the same time, the plethora of papers examining the determinants of tax avoidance makes
it difficult for researchers to broaden the scope of the literature. Hence, compelling research
designs that can isolate the channels through which firms engage in tax avoidance are required.

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8.2 Stakeholders’ Role in Corporate Tax Avoidance

Another promising research area covers the role of other stakeholders. If stakeholders respond
to tax avoidance outcomes, a firm needs to integrate these (potentially costly) consequences
into its tax-related decision making. Hence, we look forward to future work, which could, for
instance, examine the different facets of the reputational costs associated with corporate tax
avoidance. For example, one potential question is whether employees and long-term suppli-
ers disapprove overly aggressive tax avoidance activities and punish tax-avoiding firms with
lower productivity levels. Another important question is whether different stakeholder groups
have potentially conflicting preferences for tax avoidance. It could, for instance, seem plausi-
ble for investors to prefer more aggressive but value-enhancing tax avoidance activities, while
employees may exhibit a relatively lower preference for such activities due to the inherent tax
risks. Exploring situations in which the preferences of different stakeholder groups diverge
could yield valuable insights that can help to explain why some firms engage in aggressive tax
avoidance while others do not (Weisbach, 2002).

8.3 Real Effects of Corporate Tax Avoidance

Scholes and Wolfson (1992) emphasize that taxes represent a first-order cost factor in almost
all business decisions. Corporate tax avoidance can reduce this cost. However, beside its cost-
saving potential, tax avoidance can have several other real consequences. The literature on the
consequences of tax avoidance is still relatively young. The DJJM framework suggests that
the consequences of tax avoidance are far-reaching and could even expand to labor and capital
market effects. Future research is needed to gain a better understanding of these real effects.
To better explain corporate decision making, other fields (e.g., finance and economics) are in-
creasingly embracing the dynamic nature of firm decisions under uncertainty (e.g., Hansen and
Sargent, 2018). As argued in Section 5, tax considerations can involve substantial uncertainty
and risk. If a firm’s management faces substantial difficulties in anticipating the benefits and
costs associated with corporate tax avoidance, potential learning and feedback dynamics can
become important and could alter a firm’s strategic behavior and operations in nontrivial ways.
We view these interactions as a fruitful avenue for future research.

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8.4 Challenges in Construct Measurement

Blouin (2014) points out that the tax avoidance literature “essentially relies on the fact that we
can reasonably measure the level of firms’ tax planning activities” (p. 876). However, an inher-
ent empirical challenge in tax avoidance research is the difficulty in delineating concepts and
addressing potential measurement issues. While we acknowledge prior works’ calls for better
construct operationalization beyond ETRs (Hanlon and Heitzman, 2010; Blouin, 2014) and the
fact that several innovative measurement approaches have recently emerged (e.g., Balakrishnan
et al., 2019), we believe that there is still considerable potential for future advances in construct
measurement (e.g., with respect to tax aggressiveness or tax risk). Moreover, the tax literature’s
understanding of the term tax avoidance is still limited. No general consensus exists on where
to draw the line between non-aggressive and aggressive tax avoidance activities. For instance,
whether excessive tax loss utilization already represents a form of aggressive tax avoidance is
unclear. Blouin (2014) argues that “tax aggressiveness can only be defined by considering the
riskiness of the firm’s tax planning activities” (p. 878). In other words, if a tax transaction does
not bear additional risks stemming from the way the transaction is structured for tax purposes,
then the transaction should not be considered tax aggressive. However, as Blouin (2014) re-
marks, this consideration only pushes the definitional issue to the next level and brings up a
further concern: up to now, we have a limited understanding of what constitutes tax risk and
tax uncertainty. In addition, it is not clear whether these two constructs are indeed clearly dis-
tinguishable (Wilde and Wilson, 2018). Given these definitional challenges, it is not surprising
that the literature is struggling substantially with measuring tax risk, tax uncertainty, and tax
aggressiveness, especially for non-U.S. firms, which do not report UTBs.
Some studies use firms’ cash ETR volatility to proxy for tax risk (e.g., Gallemore and Labro,
2015; Guenther, Matsunaga, and Williams, 2017). However, as in the case with ETR-based
tax avoidance measures, such measures can be noisy, and volatility shifts could be exogenously
induced (e.g., through statutory tax rate reductions). Moreover, recent qualitative work suggests
that different parties involved in corporate tax practice tend to define tax risk differently—
not only in terms of construct composition, but also in terms of construct direction (Brühne
and Schanz, 2019). These definitional advances offer the advantage of substantially informing
operationalization choices employed in future empirical work. Nevertheless, the measurement

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and definition of core tax concepts (i.e., tax avoidance, tax aggressiveness, tax risk, and tax
uncertainty) remain a primary challenge of future tax research.

9 Conclusion

In this study, we provide a theoretically grounded, quantitative review of the literature on corpo-
rate tax avoidance and the real effects of taxation. Building on the framework by Dyreng et al.
(2019b), we derive theoretical predictions on the dynamics of corporate tax avoidance engage-
ment. We conduct a quantitative synthesis of 137 studies on tax avoidance determinants and
consequences. Comparing the results of this analysis with our theorizing allows us to identify
areas where theory is either not supported by empirical evidence or where theory is ambiguous
but clear empirical results seem to exist. Based on these results and under consideration of
the two growing literature streams on tax uncertainty and real effects, we develop a structured
research agenda for the future. In particular, this review calls for more research on the mi-
croeconomic dynamics of corporate tax avoidance, stakeholders’ role in shaping corporate tax
practice, and the real effects of corporate tax avoidance. We also highlight ongoing challenges
in defining and measuring (aggressive) tax avoidance, tax uncertainty, and tax risk.
This study contributes to the tax literature in several ways. While prior reviews (Shackelford
and Shevlin, 2001; Hanlon and Heitzman, 2010; Wilde and Wilson, 2018) are either confined to
early or selected tax avoidance research, our quantitative review approach allows a comprehen-
sive synthesis and discussion of the current state of the literature. We also account for relatively
young literature streams (i.e., on tax uncertainty and real effects) and consider studies at the
intersection of accounting, finance, and economics. Further, in contrast to prior reviews, which
primarily focus on U.S.-centered work, our review also accounts for international evidence. Fi-
nally, the theoretical considerations of the dynamics of corporate tax avoidance engagement,
which we derive from the framework of Dyreng et al. (2019b), allow other researchers to not
only map existing tax avoidance studies but also help them identify fruitful area for future re-
search. We look forward to future studies addressing the challenges and open questions outlined
in this review to advance our understanding of corporate tax practice.

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 Figure 1: Development of the Tax Avoidance Literature
This figure shows the amount of (empirical and non-empirical) studies published per year that fall into one of the following four
categories: studies on the determinants of tax avoidance, studies on the consequences of tax avoidance, studies on tax risk or uncertainty,
and studies on the real effects of taxation. For this figure, we consider papers that appeared in any of the journals listed in Table 1 over
the period from 1998 to 2018.

Shackelford & Hanlon &

20
Shevlin (2001) Heitzmann (2010)
Nr. Studies per Year

15

10

0
1998

2001

2002

2003

2004

2005

2006

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018
Topic Determinant Consequence Uncertainty Real Effects

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 Figure 2: Graphical Summary Analysis
Panel A depicts the most important determinants of corporate tax avoidance identified in our quantitative literature synthesis. It summa-
rizes the key results from Table 3 through histograms. Each histogram presents the relative frequency of the coefficient sign–significance
combination—significant negative (-/Y), insignificant negative (-/N), insignificant positive (+/N), and significant positive (+/Y)—across
all relevant main regressions in the 114 determinant studies considered. Each histogram addresses one determinant of tax avoidance.
The figure depicts the 20 most important determinants of the 32 determinants identified from empirical work. The remaining 12 deter-
minants, not depicted in this figure, are included in the Online Appendix. Panel B depicts the most important consequences of corporate
tax avoidance identified in our quantitative literature synthesis. This panel summarizes the key results from Table 4 through histograms.
Each histogram presents the relative frequency of the coefficient sign–significance combinations across all relevant main regressions
in the 23 consequence studies considered. The relevant coefficients are collected from all the main regressions that regress a relevant
consequence proxy on a measure of tax avoidance. Note that the coefficient sign–significance combinations represent findings at the
aggregate level. The black bars in Panels A and B display those combinations that are consistent with the theoretical prediction derived
from the framework of Dyreng et al. (2019b).

Panel A: Determinant Studies

Size (n=213) Market Power (n=20) Profitability (n=206) Losses (n=273)
Pred. unclear Pred. unclear Pred. unclear Pred. negative
0.8
0.6
0.4
0.2
0.0
−/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y
Growth Opportunities (n=220) Tangible Assets (n=191) Intangible Assets (n=239) Leverage (n=188)
Pred. positive Pred. unclear Pred. unclear Pred. negative
0.8
0.6
0.4
0.2
0.0
−/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y
Financial Constraints (n=96) Foreign Operations (n=184) Inst. Ownership (n=32) Exec. Incentives (n=71)
Pred. positive Pred. positive Pred. unclear Pred. unclear
0.8
0.6
0.4
0.2
0.0
−/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y
Ext. Inf. Environment (n=43) BTC (n=4) Fin. Rep. Incentives (n=97) Statutory Tax Rate (n=22)
Pred. negative Pred. negative Pred. negative Pred. positive
0.8
0.6
0.4
0.2
0.0
−/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y
WW Tax System (n=8) Anti−TA Rules (n=4) Tax Enforcement (n=18) Country Characteristics (n=29)
Pred. unclear Pred. negative Pred. negative Pred. unclear
0.8
0.6
0.4
0.2
0.0
−/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y

Panel B: Consequence Studies

Cost of Capital (n=23) Debt (n=11) Firm Value (n=4) Transparency (n=31)
1.00 Pred. unclear Pred. unclear Pred. unclear Pred. negative
0.75
0.50
0.25
0.00
−/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y

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 Table 1: List of Journals

Journal No. Articles

Accounting Journals
The Accounting Review 35
Contemporary Accounting Research 15
Journal of the American Taxation Association 13
Journal of Accounting & Economics 11
Journal of Accounting Research 8
Journal of Business Finance & Accounting 7
Review of Accounting Studies 7
European Accounting Review 2
Auditing – A Journal of Practice & Theory 1
Abacus A Journal of Accounting Finance and Business Studies 0
Accounting Organizations and Society 0
Management Accounting Research 0
Economics Journals
Journal of Public Economics 9
Review of Economics and Statistics 3
Applied Economics 1
Economic Journal 1
American Economic Review 0
Econometrica 0
Economic Policy 0
Journal of Econometrics 0
Journal of Economic Growth 0
Journal of Labor Economics 0
Journal of Political Economy 0
Quarterly Journal of Economics 0
Rand Journal of Economics 0
Review of Economic Studies 0
Finance Journals
Journal of Financial Economics 9
Journal of Corporate Finance 7
Journal of Banking & Finance 6
Financial Management 1
Journal of Financial and Quantitative Analysis 1
Journal of Empirical Finance 0
Journal of Finance 0
Journal of Financial Intermediation 0
Journal of Financial Markets 0
Journal of International Money and Finance 0
Journal of Money Credit and Banking 0
Review of Finance 0
Review of Financial Studies 0
This table lists the journals considered in the quantitative literature synthesis, and the number of articles in each. We search WoS for all studies
published between 1998 and 2018 that are captured by the search queries tax avoidance, tax planning, tax shelter, tax aggressiveness, income
shifting, profit shifting, and effective tax rate. The studies retrieved are then filtered and sorted into the categories of either tax avoidance
determinant or tax avoidance consequence studies.

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 Table 2: Summary of Theoretical Predictions

Determinant Benefits Costs Prediction

Size ↑ ↑/↓ ?
Larger firms can attract more Political cost hypothesis vs. political
productive employees power hypothesis
→ productivity increases
Market Power ↑/↓ ?
Higher market power → higher
profitability; but potential
contradicting effect depending on
substitutability/complementarity of
labor and capital
Profitability ↑ ↑ ?
Higher profitability → higher tax base Higher profitability → higher
IRS/investor scrutiny → higher costs
of tax avoidance
Losses ↓ −
NOLs → lower tax base; loss
carryforward potential reduces tax
avoidance incentives
Growth Opportunities ↑ ↓ +
Expansion to new products or markets Greater flexibility in setting up
→ increasing output (but also international structures → lower
increasing demand for input factors) implementation costs of tax avoidance
Higher capital-to-labor ratio Lower capital mobility → higher costs
→ less deductible input (η<1) to implement tax avoidance structures
Intangible Assets ↑/↓ ↓ ?
Higher skilled labor; less Higher capital mobility → lower cost
capital-intensive → more deductible to implement tax avoidance structures
input. Intangible capital more
productive → output increases.
However, in some countries tax
benefits (e.g., tax credits for R&D) →
varying tax base effects
Leverage ↓ −
Higher leverage increases η and r →
lower tax base (debt and tax avoidance
as substitutes)
Financial Constraints ↑ (↑) + (?)
Financially constrained firms By avoiding taxes through
substitute costly external financing cross-border tax avoidance, profits are
with internal financing → r decreases allocated to foreign subsidiaries;
→ larger tax base. At the same time, hence, internal capital is locked in,
more internal financing leads to lower high repatriation costs (if financial
debt tax shield (η goes down) → tax constraints are domestic)
avoidance incentives increase
Foreign Operations ↓ +
Lower implementation costs if
corporate presence in low-tax
countries
Inst. Ownership ↑ ↑ ?
More efficient monitoring → higher Higher reputational costs/corporate
productivity social responsibility concerns
(continued on next page)

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 Table 2: Summary of Theoretical Predictions (continued)

Determinant Benefits Costs Prediction

Top Exec. Incentives ↑ (↑) ?
After-tax compensation incentives →
Executive compensation reduces rent
increase in productivity extraction → higher costs of tax
→ higher tax base avoidance (if there are
complementarities between rent
extraction and tax avoidance)
Ext. Info. Environment ↑ −
Higher external information quality
→ increase in transparency
→ increase in detection probability →
higher costs of tax avoidance
Fin. Rep. Incentives / BTC ↑ −
High BTC
→ higher costs of tax avoidance; under
low BTC, large book–tax differences
raise regulatory scrutiny → higher
costs of tax avoidance
Statutory Tax Rate ↓ +
Lower foreign statutory tax rate
→ larger statutory tax rate differential
→ lower implementation costs of tax
avoidance structures
Worldwide Tax System ↑ −
Additional tax when shifted profits are
repatriated → higher costs of tax
avoidance
Anti-TA Rules ↑ −
Stricter anti-TA rules → higher
implementation costs
Tax Enforcement ↑ −
Stricter enforcement increases costs
(e.g., more regulatory scrutiny under
stricter enforcement)
Country Characteristics ↑/↓ ↑/↓ ?
Output and input factor costs depend Varying costs of tax avoidance (e.g.,
on country specifics due to varying enforcement/scrutiny
→ varying tax base effects levels)
This table summarizes theoretical predictions on the association between different determinants and corporate tax avoidance, derived from the
framework of Dyreng et al. (2019b). The symbol ↑ denotes a theoretically predicted positive effect of a determinant on either the benefits or costs
of tax avoidance, ↓ denotes a theoretically predicted negative effect, and ↑ / ↓ denotes a theoretically unclear directional effect. The last column
shows the overall prediction on the association between a determinant and corporate tax avoidance. This overall prediction is derived by weighing
the predicted benefit and the cost effects. Note that, for two determinant constructs, our theoretical prediction focuses on the dominant subconstruct
(i.e., board size for board characteristics and a B2C customer base for the customer base).

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 Table 3: Quantitative Synthesis of Determinants

Empirical Evidence
No. No.
Pred. -/N -/Y +/N +/Y
Studies Regs.
Size ? 81 213 0.11 0.35 0.17 0.36
Market Power ? 5 20 0.25 0.20 0.30 0.25
Profitability ? 77 206 0.07 0.30 0.11 0.52
Losses - 58 273 0.15 0.20 0.20 0.45
Growth Opportunities + 68 220 0.19 0.20 0.23 0.37
Tangible Assets ? 62 191 0.19 0.20 0.23 0.38
Intangible Assets ? 71 239 0.18 0.19 0.21 0.41
Leverage - 73 188 0.21 0.18 0.22 0.39
Financial Constraints + (?) 33 96 0.16 0.19 0.21 0.45
Foreign Operations + 71 184 0.15 0.14 0.25 0.46
Inst. Ownership ? 9 32 0.12 0.31 0.12 0.44
Top Exec. Incentives ? 21 71 0.20 0.17 0.28 0.35
Ext. Inf. Environment - 20 43 0.28 0.19 0.26 0.28
BTC - 4 4 0.75 0.25
Fin. Rep. Incentives - 34 97 0.10 0.09 0.16 0.64
Statutory Tax Rate + 18 22 0.23 0.77
WW Tax System ? 7 8 0.50 0.25 0.25
Anti-TA Rules - 4 4 0.75 0.25
Tax Enforcement - 10 18 0.11 0.72 0.11 0.06
Country Characteristics ? 8 29 0.07 0.38 0.24 0.31
This table presents the detailed results of our quantitative synthesis of the 114 tax avoidance determinant studies. The information depicted
is more detailed than in our determinant discussion in Figure 2 and Table 2. The measure column denotes the different independent variables
included in the main regressions of the 114 studies considered, grouped by underlying constructs. The next column repeats the predictions
from Table 2 on the direction of the association between a determinant and corporate tax avoidance. The next column shows the number of
studies with a proxy for the determinant of interest in their main test(s), with a tax avoidance proxy as the dependent variable. Some studies
have multiple main regressions and use different tax avoidance proxies. In these cases, we consider all of these regressions in our analysis in
the next column and count the number of regressions of all 114 studies that include the respective proxy. In rare cases, a regression includes
two or more proxies for the same determinant. Those cases are also counted in this column. Whenever necessary, we reverse the coefficient
signs to ensure directional comparability across all tax avoidance proxies. For example, if a study originally reports a negative determinant
coefficient and the dependent variable of the regression is a firm’s GAAP ETR, we reverse the coefficient sign (from negative to positive) to
accurately record the positive association between the respective determinant and tax avoidance. Consequently, -/N denotes an insignificant
negative association with tax avoidance, -/Y a significant negative association with tax avoidance, +/N an insignificant positive association with
tax avoidance, and +/Y a significant positive association with tax avoidance. The numbers reported in the respective columns represent the
numbers of the respective coefficient sign–significance combinations relative to the number of regressions.

Table 4: Quantitative Synthesis of Consequences

Empirical Evidence
No. No.
Pred. -/N -/Y +/N +/Y
Studies Regs.
Transparency - 9 31 0.13 0.81 0.03 0.03
Cost of Capital ? 7 23 0.04 0.09 0.04 0.83
Cost of Debt ? 3 11 0.09 0.91
Firm Value ? 4 4 0.25 0.50 0.25
This table presents the detailed results of our quantitative synthesis of the 23 tax avoidance consequence studies. The measure column
denotes different dependent variables included in the main regressions of these studies, grouped by underlying constructs. The next column
denotes the expected sign of the relation between tax avoidance and the constructs of interest. The next column denotes the number of studies
including a consequence proxy as the dependent variable in their main test(s) and using a tax avoidance proxy as a key explanatory variable.
The next column counts the number of relevant regressions of all 23 studies. When we count the number of positive and negative coefficients,
we adjust the reported sign (if necessary, depending on the dependent and independent variable) to reflect a construct’s association with
tax avoidance. where -/N denotes an insignificant negative association with tax avoidance, -/Y a significant negative association with tax
avoidance, +/N an insignificant positive association with tax avoidance, and +/Y a significant positive association with tax avoidance. The
numbers reported in the respective columns represent the numbers of the respective coefficient sign–significance combinations relative to the
number of regressions.

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 Online Appendix:
Corporate Tax Avoidance and the Real Effects of
Taxation: A Review

ALISSA I. BRÜHNE, WHU – Otto Beisheim School of Management

MARTIN JACOB, WHU – Otto Beisheim School of Management

November 29, 2019

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 This appendix complements the discussion in the paper in two ways. First, in Section A
of this appendix, we discuss additional determinants, which were not discussed in detail in the
paper. The order of determinants is in principle based on the frequency of occurrence. Second,
in Section B, we present extended versions of the tables and figures of the paper.

A Additional Determinants of Tax Avoidance

A.1 Life Cycle Stage

Closely related to economic growth opportunities, is the respective life cycle stage of a firm. The
life cycle theory of a firm hypothesizes that a firm ‘ages’ by using up its growth opportunities
(Mueller, 1972). Thus, the theoretical reasoning is (at least partially) consistent to the argu-
mentation line in the previous subsection on corporate growth. In early life cycle stages, when
growth opportunities are high, firms refrain from paying dividends to shareholders. Instead,
they invest to exploit existing growth opportunities. Theory argues that new growth opportu-
nities become fewer when markets mature (Mueller, 1972). Transferring these considerations
to the Dyreng, Jacob, Jiang, and Müller (2019) framework reveals that the theoretical predic-
tion depends on the respective life cycle stage. For example, for earlier life cycle stages, the
arguments from above hold and such firms should engage in relative more tax avoidance.
The empirical evidence displayed in Table A.3 provide several interesting insights. In to-
tal, five studies account for a relation of a firm’s life cycle stage with corporate tax avoidance
(Dyreng, Lindsey, and Thornock, 2013; Gallemore and Labro, 2015; Hasan, Al-Hadi, Taylor,
and Richardson, 2017b; Huang, Sun, and Yu, 2017; Tang, Mo, and Chan, 2017). Thereof, three
studies use firm age to proxy for the corporate life cycle stage. 29 percent of the regressions,
which use firm age as proxy, document a statistically significant and positive association with
corporate tax avoidance opportunities. Hasan et al. (2017b) adopt a slightly different measure-
ment approach and break down the life cycle of a firm into four different stages. Based upon
that, they construct four indicator variables accounting for the respective life cycle stage (i.e.,
introduction stage, growth stage, decline stage, or maturity stage). The regressions in Hasan
et al. (2017b) reveal that firms at the declining stage tend to engage in more tax avoidance,
while a decline in tax avoidance can be observed for firms in growth stages. One challenge

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faced by most of the outlined life cycle studies is that it is difficult to detach changes in firm
characteristics from firms’ actual life cycle stages. Future work is needed to address this con-
cern.

A.2 Business Model

A firm’s business model strongly determines the form of its overall strategy (e.g., cost leadership
versus premium manufacturing) and thereby also the optimal input factor levels K ∗ , L∗ , and A∗ .
Moreover, the business model itself may affect other firm-level determinants, such as a firm’s
asset structure, its foreign operations, or its capital structure. Additionally, the business model
of a firm can influence firm outsiders’ accessibility and visibility of corporate tax avoidance
strategies. In the following, we focus on two core dimensions of the business model and how
they may affect corporate tax avoidance engagement: The degree of corporate complexity and
a firm’s customer base.

A.2.1 Corporate Complexity

Corporate complexity represents a central component of a firm’s business model. We acknowl-

edge that the term ‘corporate complexity’ can encompass various organizational design fea-
tures. For simplification purposes, we follow Bushman, Piotroski, and Smith (2004) and adopt
a two-dimensional complexity definition in this study. Specifically, we assume that firms, which
operate in multiple industries and/or geographic regions, face higher corporate complexity than
firms with higher industry or geographic market concentration.
From a theoretical point of view, the association between corporate complexity and cor-
porate tax avoidance is not straightforward. On the one hand, more complex firms are less
transparent (Balakrishnan, Blouin, and Guay, 2019). Thus, corporate complexity may reduce
the probability that tax avoidance structures are overruled by tax auditors. This can result in
lower tax avoidance costs (i.e., a reduction of the right-hand side of Equation 2 in the paper.
Firms with high geographic complexity and/or presence in various industries may further have
access to a wider range of tax avoidance opportunities. On the other hand, more complex firms
may face higher implementation costs of certain tax avoidance activities (e.g., stemming from
lower flexibility and higher coordination costs). Hence, the cost side of Equation 2 in the paper

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should increase, potentially diminishing the desirability of corporate tax avoidance engagement
again. In sum, no unambiguous theoretical prediction on the link between corporate complexity
and firms’ tax avoidance engagement can be derived from the Dyreng et al. (2019) framework.
The empirical evidence considered in our quantitative synthesis is also mixed. However,
several noteworthy observations can be made. Table A.3, for instance, reveals that the proxy
choices employed by our sample studies seem to be consistent with the two-sided complexity
definition proposed by Bushman et al. (2004): Several studies operationalize corporate com-
plexity either through a firm’s geographic dispersion or its industry spread (Armstrong, Blouin,
and Larcker, 2012; Kim and Zhang, 2016). With regards to actual findings, Table A.3 show that
22 percent of all regressions report a significant positive relation, while 16 percent provide ev-
idence for a significant negative relation between corporate complexity and tax avoidance. We
interpret these mixed empirical findings as indication that further compelling research designs
are needed to isolate the complexity of group structures from other factors, such as internation-
alization. We look forward to future work addressing these empirical challenges and isolating
the role of corporate complexity.

A.2.2 Customer Base

The customer base of a firm represents the second business model dimension we discuss in
this review. The customer base of a firm likely determines the costs associated with corporate
tax avoidance engagement. Consumer-oriented (B2C) business models can, for example, be ex-
pected to trigger higher public scrutiny than business-oriented (B2B) business models. Thus, the
Dyreng et al. (2019) framework predicts that firms with more consumer-oriented business mod-
els tend to engage in less tax avoidance due to higher implementation costs (e.g., reputational
costs). A similar prediction may hold for firms primarily engaging in government contracts
(Mills, Nutter, and Schwab, 2013).1
The results of our quantitative synthesis show that firms with strong consumer-brand equity
or high advertising expenses engage in significantly less tax avoidance (e.g., Davis, Guenther,
Krull, and Williams, 2016; Austin and Wilson, 2017; Bird, Edwards, and Ruchti, 2018). We in-
1. Note that generally, the prediction on the association between customer base and tax avoidance is theoretically
unclear. Different customer base types may affect corporate tax avoidance engagement differently.

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terpret advertising expenses as an indirect proxy of consumer-oriented business models. Hence,
on average, the empirical evidence seems to support our theorizing for this customer base type.

A.3 Family Ownership

Chen, Chen, Cheng, and Shevlin (2010) focus on the difference between family firms and non-
family firms. From a theoretical perspective, family ownership should, on the one hand, in-
crease the incentives to engage in corporate tax avoidance due to the outlined productivity ef-
fect. Greater concentration of ownership and control allows family owners to better lead and
supervise managers, potentially resulting in lower agency costs between family owners and
managers (Jensen and Meckling, 1976; Jensen, 1986; Francis and Smith, 1995; Shleifer and
Vishny, 1997). Family firms further can be expected to have larger rent extracting opportunities
and should thus benefit more from corporate tax avoidance. However, family firms are subject to
larger majority-minority shareholder conflicts, potentially increasing the costs of corporate tax
avoidance. Minority shareholders may anticipate majority shareholders’ rent-extracting behav-
ior and may penalize firm owners with a more costly share price discount (Myers and Majluf,
1984; Burkart, Panunzi, and Shleifer, 2003). Thus, the agency costs between family owners
and external stakeholders may increase. Further, the reputational costs associated with corpo-
rate tax avoidance may be higher in the case of family ownership (Jacob, Rohlfing-Bastian, and
Sandner, 2016).
In sum, it is not possible to derive a clear theoretical prediction on how family owner-
ship affects corporate tax avoidance. Chen et al. (2010) document a negative and statistically
significant effect of family ownership on corporate tax avoidance engagement. Motivated by
comparable theoretical considerations, Badertscher, Katz, and Rego (2013) report a statistically
significant and negative link between management ownership and corporate tax avoidance. Un-
der management ownership, the concentration of control should give rise to comparable agency
conflicts as in the case of family ownership.

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A.4 Board Characteristics

Board characteristics also represent an important governance component, potentially related to

tax avoidance. Various board structures can reduce agency costs, as they strengthen monitoring
mechanisms and can enhance firm performance (see, e.g, Yermack, 1996; Core, Holthausen,
and Larcker, 1999; Ghosh, 2006). Consistent with both sides of Equation 2 in the paper and
the arguments raised by Desai and Dharmapala (2006), we acknowledge that specific board
structures may positively affect corporate tax avoidance incentives. However, due to the variety
of board characteristics, no clear theoretical prediction can be made.
We identify five empirical studies controlling for board characteristics in our quantitative
synthesis. One board characteristic considered by several studies is board size. The theoretical
argument is that smaller boards may be able to implement tax avoidance structures at lower
cost (e.g., due to lower coordination needs). Thus, tax avoidance should decrease with board
size. In line with this theoretical prediction, Table A.3 in the Appendix displays that two of six
regressions controlling for board size report a statistically significant and negative association,
whereas only one study documents a significant positive relation. However, due to the low
number of studies and the lack of exogenous variation in board size, the observed empirical
regularities should be interpreted carefully. Further research on this regard is needed.
Besides board size, board composition is considered by several empirical studies in our
sample (e.g., Armstrong, Blouin, Jagolinzer, and Larcker, 2015; Olsen and Stekelberg, 2016;
McClure, Lanis, Wells, and Govendir, 2018). These studies, for instance, control for the number
of financial experts or the percentage of indirect directors or auditors on the board. Yet, as
depicted in Table A.3, the empirical evidence is again mixed, which reinforces our call for more
research on board characteristics and their potential effect on corporate tax avoidance activities.

A.5 Executive Characteristics

The necessity to control for executive characteristics can be motivated theoretically, since man-
agers’ personal attributes (e.g., their (intrinsic) motivation, skill set, or prior job expertise) may
determine corporate productivity levels. The Dyreng et al. (2019) framework suggests that
higher productivity leads to higher tax avoidance incentives (see left-hand side of Equation 2 in

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the paper). Yet, at the same time, managerial characteristics could also affect the cost side of
Equation 2 in the paper: Agency costs between managers and shareholders may decrease with
managers’ preference for honesty and their intrinsic motivation.2 Additionally, better skilled
or experienced managers may be able to set up tax avoidance structures at lower implementa-
tion cost. Hence, theory generally suggests a positive relation between managerial skills and
corporate tax avoidance engagement.
Our quantitative synthesis reveals that the aggregated empirical evidence tends to deviate
from this theoretical prediction (see Table A.3). Of the 40 regressions controlling for executive
characteristics, 40 percent document a statistically significant and negative association with tax
avoidance.
With regards to managerial skills and experience (e.g., proxied by managerial ability, CEO
age, or CEO MBA education), we find that only 20 percent of the regressions obtain a positive
relation between managerial skills and corporate tax avoidance. Other specific management
characteristics considered in recent empirical tax avoidance studies are personal tax aggres-
siveness (Chyz, 2013), gender (Francis, Hasan, Wu, and Yan, 2014), CEO narcissism (Olsen
and Stekelberg, 2016), managerial overconfidence (Kubick and Lockhart, 2017), and execu-
tives’ military experience (Law and Mills, 2017).3 From a theoretical perspective, it is not clear
whether the coefficients of all these managerial characteristics should point in the same direc-
tion. However, given that the literature on manager effects is just evolving, we call for future
theoretical, archival, experimental, or qualitative work enhancing our understanding of execu-
tives’ role in shaping corporate tax practice. First attempts in this direction exist (e.g., Feller
and Schanz, 2017). Yet, more research is required to get inside the “black box” of corporate tax
practice and understand it in all its depth.
2. Supporting this theoretical argument, Evans, Hannan, Krishnan, and Moser (2001) provide experimental evi-
dence that their participants often favored honest decision-making over additional wealth.
3. Some studies, which examine the relation between manager characteristics and corporate tax avoidance, have
indeed been published in management journals. They are not included in our analysis due to the restrictiveness
of our search criteria. Christensen, Dhaliwal, Boivie, and Graffin (2015), for example, look at managers’
personal political orientation and analyze how it relates to corporate tax avoidance. Koester, Shevlin, and
Wangerin (2017) examine the link between managerial ability and firms’ tax avoidance engagement.

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A.6 Labor Organization

Distantly related to corporate governance, Chyz, Leung, Li, and Rui (2013) examine a poten-
tial effect of unionization on corporate tax avoidance. Unions may function as some form of
internal monitoring device, raising the costs associated with tax avoidance for a firm’s man-
agement. In addition, a direct economic effect may exist: If unionization increases labor input
costs w, this will reduce the tax base, as higher wages can potentially induce a shift towards
more capital input. The Dyreng et al. (2019) framework, in sum, suggests a negative effect of
labor organization on corporate tax avoidance—at least in the short run. Consistent with this
prediction, Chyz et al. (2013) document a statistically significant negative association between
union coverage and corporate tax avoidance. Future work could add to this by investigating, for
example, whether employee satisfaction moderates the association between labor organization
and corporate tax avoidance.

A.7 The Internal Information Environment of the Firm

Another governance-related determinant of corporate tax avoidance is the quality of a firm’s

internal information environment. Internal information quality refers to the availability, acces-
sibility, accuracy, and amount of information that is created, collected, and consumed within a
firm (Gallemore and Labro, 2015). Higher internal information quality is commonly assumed
to foster better identification of tax avoidance opportunities within firms. Additionally, higher
internal information quality reduces the risks associated with tax avoidance, and thus lowers the
overall cost of corporate tax avoidance engagement (right-hand side of Equation 2 in the paper).
Empirical work examining the role of internal information quality in the tax context origi-
nated from financial reporting studies’ interest in corporate transparency and information qual-
ity (e.g., Bushman and Smith, 2003; Shroff, Verdi, and Yu, 2014). Further, management ac-
counting studies claim that higher internal information quality should improve corporate decision-
making (e.g., Gordon, Larcker, and Tuggle, 1978). An early study examining internal infor-
mation quality in the tax setting is provided by Gallemore and Labro (2015). Specifically,
Gallemore and Labro (2015) employ four different proxies to measure internal information
quality (earnings announcement speed, management forecast accuracy, absence of material

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weaknesses, and the absence of error restatements). Their results support a significant posi-
tive association between internal information quality and corporate tax avoidance.
A later study by Bauer (2016) differentiates between tax-related and other internal control
weaknesses disclosed under the Sarbanes-Oxley Act. This study documents statistically sig-
nificant results for tax-related internal control weaknesses. On average, a tax-related internal
control weakness seems to be associated with a substantial increase in the rate of taxes paid.
Weak internal controls can increase the likelihood that employees engage in non-desired ac-
tivities, such as whistleblowing (Bowen, Call, and Rajgopal, 2010). Wilde (2017) examines the
implications of employee whistleblowing on corporate tax avoidance engagement. Employee
whistleblowing may cater inside information to firm outsiders. Hence, external monitoring may
increase. Consequently, firms may face higher implementation costs of tax avoidance (right-
hand side of Equation 2 in the paper). The empirical results provided by Wilde (2017) are
consistent with theory. He reports that whistleblower firms engage in significantly less tax shel-
ter activities and develop substantially lower book-tax differences.

A.8 Supplemental Firm Practices

A.8.1 Corporate Political Activity

Several studies examine the link between corporate tax avoidance engagement and supplemen-
tal firm practices, such as firms’ engagement in corporate political activity (i.e., lobbying).
Corporate political activity refers to firms’ attempts to mitigate the negative consequences of
corporate activities by gaining differential access to legislative information (Baysinger, 1984;
Hillman, Keim, and Schuler, 2004). Effective corporate political activity may mitigate the po-
litical costs associated with tax avoidance. Thus, the Dyreng et al. (2019) framework suggests
that firms with some form of corporate political activity may engage more in tax avoidance
activities, as they can set up such tax avoidance activities at lower cost.
Four studies in our sample investigate the association between corporate political activity
and tax avoidance empirically (Hill, Kubick, Lockhart, and Wan, 2013; Brown, Drake, and
Wellman, 2015; Kim and Zhang, 2016; Lin, Mills, Zhang, and Li, 2018). The regression re-
sults of these studies almost exclusively support our theorizing: 93 percent of the regressions

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report a statistically significant and positive relation between corporate political activity and tax
avoidance. However, despite the high homogeneity in obtained results, one potential concern
faced by all these studies is that it is quite difficult to rule out a potential self-selection bias. The
studies’ results therefore need to be interpreted with caution, since a firm’s decision to engage
in corporate political activity could (at least to some extent) be driven by its tax burden.

A.8.2 Corporate Social Responsibility

Over the last decade, a large literature examining the role of corporate social responsibility
(CSR) for accounting practices emerged. CSR generally comprises the entirety of a firm’s so-
cially responsible activities and efforts, which are directed at its customers, employees, stake-
holders, and the environment in general (Christensen, Hail, and Leuz, 2018). A firm’s en-
gagement in CSR activities may also influence its tax practice. From a theoretical perspective,
CSR firms may be able to attract better skilled and motivated employees. Hence, the produc-
tivity level of such firms may increase (Turban and Greening, 1997; Bhattacharya, Sen, and
Korschun, 2008; Balakrishnan, Sprinkle, and Williamson, 2011; Flammer and Luo, 2017). In
addition, several studies suggest that consumers might be more willing to support and buy from
socially responsible firms (Maignan, 2001; Luo and Bhattacharya, 2006; Lev, Petrovits, and
Radhakrishnan, 2010).
Both, the predicted increase in productivity and the positive shift in customer demand, pos-
itively affect the left-hand side of Equation 2 in the paper.4 Thus, corporate tax avoidance in-
centives should increase with CSR initiatives. However, at the same time, CSR firms may face
higher reputational and political costs and may thus refrain from engaging in overly aggressive
tax avoidance strategies (consistent with the right-hand side of Equation 2 in the paper). Which
of the two forces indeed dominates is an open empirical question.
Before assessing the empirical evidence on CSR and corporate tax avoidance engagement, it
is important to remark that these studies may suffer from similar concerns as corporate political
activity studies (e.g., potential self-selection issues). While extant CSR studies almost exclu-
sively focus on potentially deterring effects of CSR on tax avoidance, it also seems plausible
4. Several accounting studies also suggest that CSR activities may reduce the cost of capital (Dhaliwal, Li, Tsang,
and Yang, 2011; Goss and Roberts, 2011; Cheng, Ioannou, and Serafeim, 2014). According to the Dyreng et al.
(2019) framework, lower cost of capital would also result in higher tax avoidance incentives for firms.

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that some firms may indeed use high CSR involvement to disguise aggressive tax avoidance
activities. The theoretical link between CSR and corporate tax avoidance is thus not unambigu-
ous. The key concern is that both, CSR involvement and corporate tax avoidance engagement,
represent simultaneous outcomes of a firm’s general business strategy.
Keeping this potential issue in mind, it is not surprising that, so far, the empirical evidence
on the tax avoidance engagement of CSR firms is mixed. In total, five studies from our sample
account for the role of CSR (Huseynov and Klamm, 2012; Hill et al., 2013; Hoi, Wu, and
Zhang, 2013; Watson, 2015; Huang et al., 2017). The results of our quantitative synthesis reveal
that only 32 percent of the identified regressions obtain statistically significant results, with 5
percent of all regressions reporting a negative association and 27 percent reporting a positive
association. Hence, more research is necessary that further examines this link on the basis of
sufficiently exogenous variation in CSR activity.

A.9 Peer Firms and Intermediaries

A.9.1 Learning from Peer Firms’ Tax Avoidance Engagement

One firm’s tax avoidance engagement should not be considered in isolation. Given that taxes
represent a major cost factor for firms (Scholes et al. 1992), profit-maximizing firms likely stay
attentive to peer firms’ tax practices. Thereby, they ensure to not forego potential tax saving
potentials, which could otherwise adversely affect their competitive position. There is a vast
literature on peer effects, social learning, and institutional isomorphism in the management
and economic literature (e.g., DiMaggio and Powell, 1983; Manski, 1993; Young, 2009; Cao,
Liang, and Zhan, 2019). Recently, the role of peer effects also gained increasing relevance in
the accounting (Arya and Mittendorf, 2005; Tse and Tucker, 2010), finance (Leary and Roberts,
2014; Kaustia and Rantala, 2015), and tax literature (Brown, 2011; Brown and Drake, 2014;
Bayar, Huseynov, and Sardarli, 2018; Bird et al., 2018).
In the Dyreng et al. (2019) framework, learning from peers and mimicking their tax practices
may reduce the tax avoidance costs of a firm (see right-hand side of Equation 2 in the paper).
Peer firms’ engagement in specific tax avoidance activities could, for instance, ‘legitimize’
such practices and reduce later adopting firms’ exposure to public and tax authority scrutiny.

10

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However, even if public and tax authority scrutiny persist, firms being first movers on certain
tax practices, will likely be the ones, who will get punished by the tax authorities. Hence, later
adopting firms may face relatively lower tax avoidance costs than early adopters. Altogether,
we thus predict that peer effects may be positively associated with corporate tax avoidance
engagement.
Our quantitative synthesis approach reveals that eight regressions control for potential peer
effects. Thereof, 38 percent provide statistically significant evidence consistent with our theo-
rizing (see Table A.3).
All studies on peer effects (Brown, 2011; Brown and Drake, 2014; Bayar et al., 2018; Bird
et al., 2018) emphasize that firms can learn about their peers’ tax practices via various chan-
nels. For instance, executives, which move from one firm to another, may increase corporate
awareness for other firms’ tax practices and may thus induce mimicking behavior (Bird et al.,
2018). Alternatively, firms can learn about other firms’ tax avoidance activities through network
ties (e.g., board interlocks) (Brown, 2011; Brown and Drake, 2014) or via intermediaries. We
discuss the role of intermediaries in the next subsection.

A.9.2 Intermediaries’ Role in Shaping Corporate Tax Avoidance

Various intermediaries can shape the tax avoidance activities of a firm. One potentially relevant
intermediary group are external tax service providers (e.g., tax consultants or auditors). Engag-
ing external tax service providers with tax-specific industry expertise may enable firms to set up
tax avoidance activities at lower cost. Stated differently, external tax service providers may pos-
sess better knowledge of the portfolio of tax avoidance opportunities, which may enable them
to set up tax avoidance structures more efficiently. Hence, consistent with the right-hand side of
Equation 2 in the paper, we expect that corporate tax avoidance incentives should increase for
firms purchasing external tax services.
Our quantitative synthesis reveals mixed empirical evidence for this intermediary group.
Seven studies in our sample account for a potential effect of Big Four audit firm engagement
on corporate tax avoidance (Lisowsky, 2010; Hoopes, Mescall, and Pittman, 2012; McGuire,
Omer, and Wang, 2012; Donohoe, 2015; Kanagaretnam, Lee, Lim, and Lobo, 2018; De Simone,
Mills, and Stomberg, 2019). Of the 12 regressions identified from these studies, only 17 percent

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report a statistically significant and positive association. Yet, 33 percent of the regressions
document a statistically significant and negative link. It is important to remark that some of
these studies separately control for the tax expertise of the respective audit firms. McGuire
et al. (2012), for example, find that firms tend to engage in more tax avoidance when purchasing
services from external auditors with sufficient tax expertise. Comparable results are obtained by
other studies, which control for external tax return preparation (Klassen, Lisowsky, and Mescall,
2016), or the amount of tax fees paid to auditors (Huseynov and Klamm, 2012; Klassen et al.,
2016). Future work could further examine whether some firms are more likely to hire external
tax service providers than others. A related open question is to what extent tax policy changes
and the accompanied policy uncertainty increase corporate demand for external tax services.
Finally, one interesting observation from practice is that, recently, several firms outsource parts
of their tax department to external service providers. Future work could explore why some firms
engage in such outsourcing activities, while others refrain to do so.
A recent study by Gallemore, Gipper, and Maydew (2019) considers the role of another
intermediary group. Specifically, Gallemore et al. (2019) examine how a bank’s portfolio of
clients that engage in above-median tax avoidance may affect tax avoidance engagement of a
new client firm. Their results suggest that new client firms tend to experience substantial Cash
ETR reductions. We look forward to future studies that add to the presented work by examining
how other intermediary groups shape corporate tax practice.

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B Additional Tables and Figures

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 Table A.1: List of Analyzed Determinants and Consequences Studies

Study Journal Title

Panel A: Determinant Studies

Abernathy, Kubick, and Masli JATA General counsel prominence and corporate tax policy
(2016)
Allen, Francis, Wu, and Zhao JBF Analyst coverage and corporate tax aggressiveness
(2016)
Amiram, Bauer, and Frank TAR Tax avoidance at public corporations driven by shareholder taxes:
(2019) Evidence from changes in dividend tax policy
Armstrong et al. (2012) JAE The incentives for tax planning
Armstrong et al. (2015) JAE Corporate governance, incentives, and tax avoidance
Atwood, Drake, Myers, and TAR Home country tax system characteristics and corporate tax
Myers (2012) avoidance: International evidence
Austin and Wilson (2017) JATA An examination of reputational costs and tax avoidance: Evidence
from firms with valuable consumer brands
Ayers, Call, and Schwab (2018) CAR Do analysts’ cash flow forecasts encourage managers to improve
the firm’s cash flows? Evidence from tax planning
Badertscher et al. (2013) JAE The separation of ownership and control and corporate tax
avoidance
Badertscher, Katz, Rego, and TAR Conforming tax avoidance and capital market pressure
Wilson (2019)
Bauer (2016) CAR Tax avoidance and the implications of weak internal controls
Bayar et al. (2018) FM Corporate governance, tax avoidance, and financial constraints
Beuselinck, Deloof, and RAST Cross-jurisdictional income shifting and tax enforcement:
Vanstraelen (2015) Evidence from public versus private multinationals
Bird et al. (2018) TAR Taxes and peer effects
Brown (2011) TAR The spread of aggressive corporate tax reporting: A detailed
examination of the corporate-owned life insurance shelter
Brown and Drake (2014) TAR Network ties among low-tax firms
Brown et al. (2015) JATA The benefits of a relational approach to corporate political activity:
Evidence from political contributions to tax policymakers
Buettner, Overesch, Schreiber, JPE The impact of thin-capitalization rules on the capital structure of
and Wamser (2012) multinational firms
Cai and Liu (2009) EJ Competition and corporate tax avoidance: Evidence from Chinese
industrial firms
Cen, Maydew, Zhang, and Zuo JFE Customer-supplier relationships and corporate tax avoidance
(2017)
Chen and Lin (2017) JFQA Does information asymmetry affect corporate tax aggressiveness?
Chen et al. (2010) JFE Are family firms more tax aggressive than non-family firms?
Chen, Chiu, and Shevlin CAR Do analysts matter for corporate tax planning? Evidence from a
(2018b) natural experiment
Chen, Schuchard, and TAR Media coverage of corporate taxes
Stomberg (2019)
Cheng, Huang, Li, and TAR The effect of hedge fund activism on corporate tax avoidance
Stanfield (2012)
Chi, Huang, and Sanchez JAR CEO inside debt incentives and corporate tax sheltering
(2017)
Chyz (2013) JAE Personally tax aggressive executives and corporate tax sheltering
Chyz et al. (2013) JFE Labor unions and tax aggressiveness
Clausing (2003) JPE Tax-motivated transfer pricing and U.S. intra firm trade prices
Clifford (2019) JPE Taxing multinationals beyond borders: Financial and locational
responses to CFC rules
Collins, Kemsley Deen, and JAR Cross-jurisdictional income shifting and earnings valuation
Lang (1998)
Davies, Martin, Parenti, and RES Knocking on tax haven’s door: Multinational firms and transfer
Toubal (2018) pricing
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 Table A.1: List of Analyzed Studies (Continued)

Study Journal Title

Davis et al. (2016) TAR Do socially responsible firms pay more taxes?
De Simone (2016) JAE Does a common set of accounting standards affect tax-motivated
income shifting for multinational firms?
De Simone, Klassen, and TAR Unprofitable affiliates and income shifting behavior
Seidman (2017)
De Simone et al. (2019) RAST Using IRS data to identify income shifting to foreign affiliates
Desai and Dharmapala (2006) JFE Corporate tax avoidance and high-powered incentives
Dharmapala and Riedel (2013) JPE Earnings shocks and tax-motivated income-shifting: Evidence from
European multinationals
Dischinger and Riedel (2011) JPE Corporate taxes and the location of intangible assets within
multinational firms
Donohoe (2015) JAE The economic effects of financial derivatives on corporate tax
avoidance
Dowd, Landefeld, and Moore JPE Profit shifting of U.S. multinationals
(2017)
Dyreng and Markle (2016) TAR The effect of financial constraints on income shifting by U.S.
multinationals
Dyreng, Hanlon, and Maydew TAR Long-run corporate tax avoidance
(2008)
Dyreng, Hanlon, and Maydew TAR The effects of executives on corporate tax avoidance
(2010)
Dyreng, Mayew, and Williams JFBA Religious social norms and corporate financial reporting
(2012)
Dyreng et al. (2013) JFE Exploring the role Delaware plays as a domestic tax haven
Dyreng, Hoopes, and Wilde JAR Public pressure and corporate tax behavior
(2016)
Dyreng, Hanlon, Maydew, and JFE Changes in corporate effective tax rates over the past 25 years
Thornock (2017)
Edwards, Schwab, and Shevlin TAR Financial constraints and cash tax savings
(2016)
Francis et al. (2014) JATA Are female CFOs less tax aggressive? Evidence from tax
aggressiveness
Frank, Lynch, and Rego (2009) TAR Tax reporting aggressiveness and its relation to aggressive financial
reporting
Gaertner (2014) CAR CEO after-tax compensation incentives and corporate tax avoidance
Gallemore and Labro (2015) JAE The importance of the internal information environment for tax
avoidance
Gallemore et al. (2019) JAR Banks as tax planning intermediaries
Graham, Hanlon, Shevlin, and TAR Incentives for tax planning and avoidance: Evidence from the field
Shroff (2014)
Gramlich, Limpaphayom, and JAE Taxes, Keiretsu affiliation, and income shifting
Ghon Rhee (2004)
Gumpert, Hines, and Schnitzer RES Multinational firms and tax havens
(2016)
Gupta and Mills (2002) JAE Corporate multi-state tax planning: Benefits of multiple
jurisdictions
Hasan, Hoi, Wu, and Zhang JAR Does social capital matter in corporate decisions? Evidence from
(2017a) corporate tax avoidance
Hasan et al. (2017b) EAR Does a firm’s life cycle explain its propensity to engage in
corporate tax avoidance?
Higgins, Omer, and Phillips CAR The influence of a firm’s business strategy on its tax aggressiveness
(2015)
Hill et al. (2013) JBF The effectiveness and valuation of political tax minimization
Hoi et al. (2013) TAR Is corporate social responsibility (CSR) associated with tax
avoidance? Evidence from irresponsible CSR activities
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 Table A.1: List of Analyzed Studies (Continued)

Study Journal Title

Hoopes et al. (2012) TAR Do IRS audits deter corporate tax avoidance?
Hope, Ma, and Thomas (2013) JAE Tax avoidance and geographic earnings disclosure
Hopland, Lisowsky, Mardan, TAR Flexibility in income shifting under losses
and Schindler (2018)
Hsu, Moore, and Neubaum JFBA Tax avoidance, financial experts on the audit committee, and
(2018) business strategy
Huang, Lobo, Wang, and Xie JBF Customer concentration and corporate tax avoidance
(2016)
Huang et al. (2017) JATA Are socially responsible firms less likely to expatriate? An
examination of corporate inversions
Huizinga and Laeven (2008) JPE International profit shifting within multinationals: A multi-country
perspective
Huseynov and Klamm (2012) JCF Tax avoidance, tax management and corporate social responsibility
Huseynov, Sardarli, and Zhang JCF Does index addition affect corporate tax avoidance?
(2017)
Jung, Kim, and Kim (2009) JFBA Tax motivated income shifting and Korean business groups
Kanagaretnam, Lee, Lim, and AJPT Relation between auditor quality and tax aggressiveness:
Lobo (2016) Implications of cross-country institutional differences
Kanagaretnam et al. (2018) RAST Societal trust and corporate tax avoidance
Khan, Srinivasan, and Tan TAR Institutional ownership and corporate tax avoidance: new evidence
(2017)
Khurana and Moser (2013) JATA Institutional shareholders’ investment horizons and tax avoidance
Kim and Zhang (2016) CAR Corporate political connections and tax aggressiveness
Klassen and Laplante (2012b) CAR The effect of foreign reinvestment and financial reporting
incentives on cross-jurisdictional income shifting
Klassen and Laplante (2012a) JAR Are us multinational corporations becoming more aggressive
income shifters?
Klassen et al. (2016) TAR The role of auditors, non-auditors, and internal tax departments in
corporate tax aggressiveness
Klassen, Lisowsky, and Mescall CAR Transfer pricing: Strategies, practices, and tax minimization
(2017)
Kubick and Lockhart (2016) JCF Do external labor market incentives motivate CEOs to adopt more
aggressive corporate tax reporting preferences?
Kubick and Lockhart (2017) JFBA Overconfidence, CEO awards, and corporate tax aggressiveness
Kubick, Lynch, Mayberry, and TAR Product market power and tax avoidance: Market leaders,
Omer (2015) mimicking strategies, and stock returns
Kubick, Lynch, Mayberry, and TAR The effects of regulatory scrutiny on tax avoidance: An
Omer (2016) examination of SEC comment letters
Kubick, Lockhart, Mills, and JAE IRS and corporate taxpayer effects of geographic proximity
Robinson (2017)
Law and Mills (2015) JAR Taxes and financial constraints: Evidence from linguistic cues
Law and Mills (2017) RAST Military experience and corporate tax avoidance
Li, Liu, and Ni (2017) JFBA Controlling shareholders’ incentive and corporate tax avoidance: A
natural experiment in China
Lin et al. (2018) CAR Do political connections weaken tax enforcement effectiveness?
Lisowsky (2010) TAR Seeking shelter: Empirically modeling tax shelters using financial
statement information
Markle (2016) CAR A comparison of the tax-motivated income shifting of
multinationals in territorial and worldwide countries
McClure et al. (2018) JCF The impact of dividend imputation on corporate tax avoidance: The
case of shareholder value
McGuire et al. (2012) TAR Tax avoidance: Does tax-specific industry expertise make a
difference?
McGuire, Wang, and Wilson TAR Dual class ownership and tax avoidance
(2014)
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 Table A.1: List of Analyzed Studies (Continued)

Study Journal Title

McGuire, Rane, and Weaver JATA Internal information quality and tax-motivated income shifting
(2018)
Merz and Overesch (2016) JBF Profit shifting and tax response of multinational banks
Mills et al. (2013) TAR The effect of political sensitivity and bargaining power on taxes:
Evidence from federal contractors
Newberry and Dhaliwal (2001) JAR Cross-jurisdictional income shifting by us multinationals: Evidence
from international bond offerings
Olsen and Stekelberg (2016) JATA Ceo narcissism and corporate tax sheltering
Overesch and Wamser (2010) APPEC Corporate tax planning and thin-capitalization rules: Evidence
from a quasi-experiment
Phillips (2003) TAR Corporate tax-planning effectiveness: The role of
compensation-based incentives
Powers, Robinson, and RAST How do CEO incentives affect corporate tax planning and financial
Stomberg (2016) reporting of income taxes?
Rego (2003) CAR Tax-avoidance activities of U.S. multinational corporations
Richardson, Lanis, and Taylor JBF Financial distress, outside directors and corporate tax
(2015) aggressiveness spanning the global financial crisis: An empirical
analysis
Robinson, Sikes, and Weaver TAR Performance measurement of corporate tax departments
(2010)
Seidman and Stomberg (2017) JATA Equity compensation and tax avoidance: Disentangling managerial
incentives from tax benefits and reexamining the effect of
shareholder rights
Shevlin, Thornock, and RAST An examination of firms’ responses to tax forgiveness
Williams (2017)
Tang et al. (2017) TAR Tax collector or tax avoider? An investigation of intergovernmental
agency conflicts
Voget (2011) JPE Relocation of headquarters and international taxation
Watson (2015) JATA Corporate social responsibility, tax avoidance, and earnings
performance
Wilde (2017) TAR The deterrent effect of employee whistleblowing on firms’ financial
misreporting and tax aggressiveness
Wilson (2009) TAR An examination of corporate tax shelter participants

Panel B: Consequences Studies

Abernathy, Beyer, Gross, and JATA Income statement reporting discretion allowed by FIN 48: Interest
Rapley (2017) and penalty expense classification
Ayers, Jiang, and Laplante CAR Taxable income as a performance measure: the effects of tax
(2009) planning and earnings quality
Balakrishnan et al. (2019) TAR Tax aggressiveness and corporate transparency
Brooks, Godfrey, Hillenbrand, JCF Do investors care about corporate taxes?
and Money (2016)
Chen, Hepfer, Quinn, and RAST The effect of tax-motivated income shifting on information
Wilson (2018a) asymmetry
Chow, Klassen, and Liu (2016) CAR Targets’ tax shelter participation and takeover premiums
Chung, Goh, Lee, and Shevlin CAR Corporate tax aggressiveness and insider trading
(2019)
Cook, Moser, and Omer (2017) JFBA Tax avoidance and ex ante cost of capital
Desai and Dharmapala (2009) RES Corporate tax avoidance and firm value
Donohoe and Knechel (2014) CAR Does corporate tax aggressiveness influence audit pricing?
Durnev, Li, and Magnan (2017) JBFA Beyond tax avoidance: offshore firms’ institutional environment
and financial reporting quality
Goh, Lee, Lim, and Shevlin TAR The effect of corporate tax avoidance on the cost of equity
(2016)
(continued on next page)

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 Table A.1: List of Analyzed Studies (Continued)

Study Journal Title

Graham and Tucker (2006) JFE Tax shelters and corporate debt policy
Hanlon and Slemrod (2009) JPE What does tax aggressiveness signal? Evidence from stock price
reactions to news about tax shelter involvement
Hasan, Hoi, Wu, and Zhang JFE Beauty is in the eye of the beholder: The effect of corporate tax
(2014) avoidance on the cost of bank loans
Heitzman and Ogneva (2019) TAR Industry tax planning and stock returns
Inger, Meckfessel, Zhou, and JATA An examination of the impact of tax avoidance on the readability of
Fan (2018) tax footnotes
Isin (2018) JCF Tax avoidance and cost of debt: The case for loan-specific risk
mitigation and public debt financing
Kim, Li, and Zhang (2011) JFE Corporate tax avoidance and stock price crash risk: Firm-level
analysis
Lim (2011) JBF Tax avoidance, cost of debt and shareholder activism: Evidence
from Korea
McGuire, Neuman, Olson, and JATA Do investors use prior tax avoidance when pricing tax loss carry
Omer (2016) forwards?
Platikanova (2017) EAR Debt maturity and tax avoidance
Richardson, Lanis, and Leung JCF Corporate tax aggressiveness, outside directors, and debt policy:
(2014) An empirical analysis
This table lists all tax avoidance determinants and consequences studies, which we consider in our quantitative synthesis.

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 Figure A.1: Graphical Summary Determinants Analysis—Extended Version
Figure A.1 summarizes the key results from Table A.3 through histograms. Each subfigure presents the relative frequency of coeffi-
cient sign-significance combinations (significant negative (‘-/Y’), non-significant negative (‘-/N’), non-significant positive (‘+/N’), and
significant positive (‘+/Y’)) across all relevant main regressions in the considered 114 determinants studies. Each subfigure addresses
one determinant of tax avoidance. Thus, in total, 32 determinants were identified from extant empirical work. The coefficient sign-
significance combinations represent findings at the aggregate level. The black bars display coefficient sign-significance combinations
that are consistent with the theoretical prediction derived from the Dyreng et al. (2019) framework.

Size (n=213) Market Power (n=20) Profitability (n=206) Losses (n=273)

1.00 Pred. unclear Pred. unclear Pred. unclear Pred. negative
0.75
0.50
0.25
0.00
−/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y
Growth Opportunities (n=220) Life Cycle Stage (n=20) Tangible Assets (n=191) Intangible Assets (n=239)
1.00 Pred. positive Pred. unclear Pred. unclear Pred. unclear
0.75
0.50
0.25
0.00
−/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y
Leverage (n=188) Financial Constraints (n=96) Foreign Operations (n=184) Corporate Complexity (n=32)
1.00 Pred. negative Pred. positive Pred. positive Pred. unclear
0.75
0.50
0.25
0.00
−/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y
Customer Base (n=46) Family Ownership (n=4) Inst. Ownership (n=32) Board Characteristics (n=30)
1.00 Pred. unclear Pred. unclear Pred. unclear Pred. unclear
0.75
0.50
0.25
0.00
−/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y
Exec. Incentives (n=71) Exec. Characteristics (n=25) Labor Organization (n=4) Int. Inf. Environment (n=12)
1.00 Pred. unclear Pred. unclear Pred. negative Pred. positive
0.75
0.50
0.25
0.00
−/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y
Ext. Inf. Environment (n=43) BTC (n=4) Fin. Rep. Incentives (n=97) Corp. Pol. Activity (n=28)
1.00 Pred. negative Pred. negative Pred. negative Pred. positive
0.75
0.50
0.25
0.00
−/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y
CSR (n=22) Peer Tax Practice (n=8) Intermediaries (n=36) Statutory Tax Rate (n=22)
1.00 Pred. unclear Pred. positive Pred. positive Pred. positive
0.75
0.50
0.25
0.00
−/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y
WW Tax System (n=8) Anti−TA Rules (n=4) Tax Enforcement (n=18) Country Characteristics (n=29)
1.00 Pred. unclear Pred. negative Pred. negative Pred. unclear
0.75
0.50
0.25
0.00
−/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y −/Y −/N +/N +/Y

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 Table A.2: Summary of Theoretical Predictions—Extended Version

Determinant Benefits Costs Prediction

Size ↑ ↑/↓ ?
Larger firms may attract more Political cost hypothesis vs. political
productive employees power hypothesis
→ Productivity increases
Market Power ↑/↓ ?
Higher market power → Higher
profitability; But potential
contradicting effect depending on
substitutability/complementarity of
labor and capital
Profitability ↑ ↑ ?
Higher profitability → Higher tax base Higher profitability → Higher
IRS/investor scrutiny → Higher costs
of tax avoidance
Losses ↓ −
NOLs → Lower tax base; Loss
carryforward potential reduces tax
avoidance incentives
Growth Opportunities ↑ ↓ +
Expansion to new products or markets Greater flexibility in setting up
→ Increasing output (yet, also international structures → Lower
increasing demand for input factors) implementation costs of tax avoidance
Life Cycle Stage ↑/↓ ↑/↓ ?
Varying profitability depending on life Varying risk appetite, varying
cycle stage, varying labor cost, tax reputational and political costs
incentives for start-ups, which depending on life cycle stage
decrease tax base
Tangible Assets ↑ ↑ ?
Higher capital to labor ratio Lower capital mobility → Higher costs
→ Less deductible input (η<1) to implement tax avoidance structures
Intangible Assets ↑/↓ ↓ ?
Higher skilled labor; less Higher capital mobility → Lower cost
capital-intensive → More deductible to implement tax avoidance structures
input. Intangible capital more
productive → output increases. Yet, in
some countries tax benefits (e.g., tax
credits for R&D) → Varying tax base
effects
Leverage ↓ −
Higher leverage increases η and r →
Lower tax base (debt and tax
avoidance as substitutes)
Financial Constraints ↑ (↑) + (?)
Financially constrained firms By avoiding taxes through
substitute costly external financing cross-border tax avoidance, profits are
with internal financing → r decreases allocated to foreign subsidiaries,
→ larger tax base. At the same time, hence, internal capital is locked in,
more internal financing leads to lower high repatriation costs (if financial
debt tax shield (η goes down) → tax constraints are domestic)
avoidance incentives increase
Foreign Operations ↓ +
Lower implementation costs if
corporate presence in low-tax
countries
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 Table A.2: Summary of Theoretical Predictions—Extended Version (Continued)

Determinant Benefits Costs Prediction

Corporate Complexity ↓/↑ ?
Decrease in transparency
→ Decrease in detection probability
→ Lower costs of tax avoidance; but:
also increase in coordination costs →
Higher implementation costs of tax
avoidance
B2C Customer Base ↑ −
Higher visibility → Higher public
scrutiny → Higher reputational costs
of tax avoidance
Family Ownership ↑ ↑ ?
Greater concentration of ownership Higher reputational costs; Larger
and control → Higher productivity majority-minority shareholder conflict
→ Higher agency costs
Inst. Ownership ↑ ↑ ?
More efficient monitoring → Higher Higher reputational costs/CSR
productivity concerns
Board Size ↑ −
Larger board size → Higher
coordination costs
Exec. Incentives ↑ (↑) ?
After-tax compensation incentives → Executive compensation reduces rent
Increase in productivity extraction → Higher costs of tax
→ Higher tax base avoidance (if there are
complementaries between rent
extraction and tax avoidance)
Exec. Characteristics ↑/↓ ↑/↓ ?
Varying executive characteristics can Varying executive characteristics can
affect productivity affect costs of tax avoidance
Labor Organization ↓ ↑ −
Unionization increases labor input Higher monitoring → Higher costs of
costs → Lower tax base tax avoidance
Int. Inf. Environment ↓ +
Identification/increase of tax
avoidance opportunities; Reduction of
environmental uncertainties
Ext. Inf. Environment ↑ −
Higher external information quality
→ Increase in transparency
→ Increase in detection probability →
Higher costs of tax avoidance
Fin. Rep. Incentives / BTC ↑ −
High book-tax conformity
→ Higher costs of tax avoidance;
under low book-tax conformity, large
BTDs raise regulatory scrutiny →
Higher costs of tax avoidance
Corp. Pol. Activity ↓ +
Lower political costs (less scrutiny)
CSR ↑ ↑ ?
Consumer goodwill → Higher Firms with high CSR activities face
profitability; CSR firms may attract higher tax avoidance costs (e.g.,
better skilled/qualified employees → reputational or political costs)
Higher productivity
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 Table A.2: Summary of Theoretical Predictions—Extended Version (Continued)

Determinant Benefits Costs Prediction

Peer Tax Practice ↓ +
Learning from peers, mimicking,
legitimization → Lower costs of tax
avoidance
Intermediaries ↓ +
Access to additional (external)
expertise → Lower costs to implement
tax avoidance
Statutory Tax Rate ↓ +
Lower foreign statutory tax rate
→ Larger statutory tax rate differential
→ Lower implementation costs of tax
avoidance structures
WW Tax System ↑ −
Additional tax when shifted profits are
repatriated → Higher costs of tax
avoidance
Anti-TA Rules ↑ −
Stricter anti TA rules → Higher
implementation costs
Tax Enforcement ↑ −
Stricter enforcement increases costs
(e.g., more regulatory scrutiny under
stricter enforcement)
Country Characteristics ↑/↓ ↑/↓ ?
Output and input factor costs depend Varying costs of tax avoidance (e.g.,
on country specifics due to varying enforcement/scrutiny
→ Varying tax base effects levels)
Table A.2 summarizes theoretical predictions on the association between different determinants and corporate tax avoidance, derived from
the Dyreng et al. (2019) framework. ↑ denotes a theoretically predicted positive effect of a determinant on either the benefits or costs of tax
avoidance; ↓ denotes a theoretically predicted negative effect of a determinant on either the benefits or costs of tax avoidance; and ↑ / ↓ denotes
a theoretically unclear directional effect of a determinant on either the benefits or costs of tax avoidance. The Prediction column shows the
overall prediction on the association between a determinant and corporate tax avoidance. This overall prediction is derived by weighing the
predicted benefit and cost effects. Note that for two determinant constructs, our theoretical prediction focuses on the dominant sub-construct
(i.e., ‘board size’ for ‘board characteristics’ and ‘B2C customer base’ for ‘customer base’).

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 Table A.3: Quantitative Synthesis of Determinants—Extended Version

Empirical Evidence
Nr. Nr.
Pred. -/N -/Y +/N +/Y
Studies Regs
Size
Aggregate ? 81 213 0.11 0.35 0.17 0.36
(Log) Total Assets 48 111 0.10 0.31 0.19 0.41
(Log) MV Equity 28 83 0.12 0.39 0.16 0.34
(Log) Sales 8 10 0.30 0.60 0.10
(Log) Number Employees 4 7 0.43 0.29 0.29
Decile-Ranks by Year-Industry of Total Assets 1 1 1.00
Square of Log Sales 1 1 1.00
Market Power
Aggregate ? 5 20 0.25 0.20 0.30 0.25
HHI 3 9 0.44 0.44 0.11
MV Client Scaled by Industry Peer Clients’ MVs 1 4 0.25 0.75
Product Market Power 1 4 1.00
Ratio of Contracts not Subject to Competition 1 1 1.00
Ratio of Defense Contract Dollars 1 1 1.00
Sum of Company Market Shares Squares 1 1 1.00
Profitability
Aggregate ? 77 206 0.07 0.30 0.11 0.52
RoA 64 167 0.07 0.31 0.10 0.53
Op. Cash Flow 4 5 0.20 0.40 0.40
RoE 2 8 0.12 0.12 0.75
RoA (Change) 2 6 0.17 0.17 0.33 0.33
EBIT 2 5 0.40 0.60
Pretax Income 2 3 0.33 0.67
Pretax Cashflows 1 4 0.75 0.25
RNoA 1 3 0.33 0.67
RoI 1 2 1.00
EBITDA 1 1 1.00
Gross Margin 1 1 1.00
Pre-Shifting Profits 1 1 1.00
Losses
Aggregate - 58 273 0.15 0.20 0.20 0.45
NOL (Indicator) 55 151 0.09 0.07 0.27 0.57
NOL (Change) 36 112 0.25 0.34 0.10 0.31
NOL Amount 2 2 0.50 0.50
Loss (Indicator) 1 4 0.25 0.75
4year Loss Intensity 1 2 0.50 0.50
Affiliate Loss (Indicator) 1 1 1.00
Loss Percentage 1 1 1.00
Growth Opportunities
Aggregate + 68 220 0.19 0.20 0.23 0.37
MB 36 116 0.17 0.17 0.26 0.40
Sales Growth 16 34 0.24 0.09 0.21 0.47
Capital Expenditures 10 18 0.06 0.39 0.22 0.33
BM 9 18 0.22 0.28 0.22 0.28
New Investment 3 15 0.33 0.33 0.13 0.20
Tobin’s Q 3 7 0.29 0.43 0.29
BM (Change) 1 3 1.00
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Table A.3: Quantitative Synthesis of Determinants—Extended Version (Continued)

Empirical Evidence
Nr. Nr.
Pred. -/N -/Y +/N +/Y
Studies Regs
Sales Growth (Change) 1 3 1.00
M&A Indicator 1 2 1.00
Asset Growth 1 1 1.00
EP 1 1 1.00
M&A (Indicator) 1 1 1.00
MV Equity (Change) 1 1 1.00
Life Cycle Stage
Aggregate ? 5 20 0.25 0.30 0.05 0.40
(Log) Firm Age 3 7 0.43 0.14 0.14 0.29
Firm Lifecycle Stage: Decline Stage (Indicator) 1 3 0.33 0.67
Firm Lifecycle Stage: Growth (Indicator) 1 3 0.33 0.67
Firm Lifecycle Stage: Introduction (Indicator) 1 3 1.00
Firm Lifecycle Stage: Mature (Indicator) 1 3 1.00
Assetage 1 1 1.00
Tangible Assets
Aggregate ? 62 191 0.19 0.20 0.23 0.38
PPE 55 153 0.19 0.13 0.24 0.44
Inventory 9 17 0.18 0.76 0.06
Depreciation & Amortization 2 7 0.57 0.29 0.14
PPE (Change) 2 7 0.29 0.14 0.43 0.14
Noncurrent Operating Assets minus Liabilities 2 2 1.00
(Change)
Inventory (Change) 1 3 1.00
PPE Scaled by Sales 1 2 0.50 0.50
Intangible Assets
Aggregate ? 71 239 0.18 0.19 0.21 0.41
R&D Expense 51 114 0.11 0.06 0.19 0.63
Intangible Assets 47 120 0.26 0.32 0.22 0.20
R&D Expense Scaled by Sales 2 3 0.33 0.67
R&D Expense (Indicator) 1 1 1.00
R&D Relevance (Indicator) 1 1 1.00
Leverage
Aggregate - 73 188 0.21 0.18 0.22 0.39
Long Term Debt 55 148 0.20 0.20 0.21 0.39
Total Debt 15 30 0.17 0.10 0.27 0.47
Interest Expense 2 2 0.50 0.50
Mezzanine Financing 2 2 0.50 0.50
Long Term Debt (Change) 1 3 0.33 0.67
Total Debt (Change) 1 2 1.00
Limited Capitalization (Indicator) 1 1 1.00
Financial Constraints
Aggregate + (?) 33 96 0.16 0.19 0.21 0.45
Cash Holdings 19 52 0.21 0.25 0.27 0.27
Free Cash Flow 5 12 0.33 0.67
SA Index 3 3 0.33 0.67
Altman’s Z-Score 2 6 0.17 0.83
Financial Assets Minus Liabilities (Change) 2 2 1.00
Current Assets Scaled by Current Liabilities 1 4 1.00
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Table A.3: Quantitative Synthesis of Determinants—Extended Version (Continued)

Empirical Evidence
Nr. Nr.
Pred. -/N -/Y +/N +/Y
Studies Regs
Ohlson Score 1 4 1.00
Zmijewski Variable 1 4 1.00
Investment Inefficiencies 1 2 0.50 0.50
Altman’s Z-Score (Change) 1 1 1.00
Credit Access 1 1 1.00
Excess Cash 1 1 1.00
Junk Rating 1 1 1.00
KZ Index 1 1 1.00
Proportion Negative Words in 10-Ks 1 1 1.00
Tightened Standards Survey Response 1 1 1.00
Foreign Operations
Aggregate + 71 184 0.15 0.14 0.25 0.46
Foreign Income 46 125 0.13 0.10 0.26 0.51
Multinational Operations (Indicator) 13 23 0.30 0.26 0.30 0.13
(Log) Foreign Assets 7 20 0.10 0.20 0.15 0.55
Tax Haven (Indicator) 5 7 0.14 0.14 0.14 0.57
Foreign Sales Percentage 2 2 0.50 0.50
Foreign Income (Change) 1 3 0.33 0.33 0.33
FDI 1 1 1.00
Tax Haven Experience (Indicator) 1 1 1.00
Tax Haven Operations Percentage 1 1 1.00
Tax Shelter Score 1 1 1.00
Corporate Complexity
Aggregate ? 7 32 0.22 0.16 0.41 0.22
Geographic Complexity 2 7 0.43 0.14 0.43
Vertical Integration 1 6 0.17 0.50 0.33
Industry Complexity 1 5 0.80 0.20
Number of Business Segments 1 4 0.25 0.25 0.50
Number of Geographic Segments 1 4 0.50 0.25 0.25
Number Foreign Segments 1 3 0.33 0.67
Number of Countries 1 1 1.00
Number of State Returns Filed 1 1 1.00
Number of States 1 1 1.00
Customer Base
Aggregate ? 12 46 0.11 0.37 0.17 0.35
Advertising Expense 8 10 0.30 0.40 0.30
Dependent Supplier (Indicator) 1 6 1.00
Government Contractor (Indicator) 1 6 0.33 0.67
Principal Customer (Indicator) 1 6 1.00
Consumer-based Brand Equity 1 5 0.80 0.20
Log of Dollar Amount of Government Contracts 1 4 1.00
Corp. Major Customer Sales 1 3 1.00
Gov. Major Customer Sales 1 3 0.67 0.33
Political Sensitivity Indicator 1 3 1.00
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Table A.3: Quantitative Synthesis of Determinants—Extended Version (Continued)

Empirical Evidence
Nr. Nr.
Pred. -/N -/Y +/N +/Y
Studies Regs

Business Model (Other)

Aggregate ? 7 23 0.30 0.22 0.17 0.30
Business Strategy: Defender (Indicator) 2 7 0.57 0.29 0.14
Business Strategy: Prospector (Indicator) 2 7 0.29 0.71
Survey Response Reputational Harm (Indicator) 1 4 0.50 0.50
Litigation (Indicator) 1 1 1.00
Operating Cycle 1 1 1.00
Profit Center (Indicator) 1 1 1.00
Tax Strategy Focus: Compliance Goal (Indicator) 1 1 1.00
Tax Strategy Focus: Tax Goal (Indicator) 1 1 1.00
Family Ownership
Aggregate ? 1 4 1.00
Family Firm (Indicator) 1 4 1.00
Institutional Ownership
Aggregate ? 9 32 0.12 0.31 0.12 0.44
Institutional Ownership 6 22 0.18 0.23 0.14 0.45
Hedge Fund Activism (Indicator) 1 4 0.25 0.75
Institutional Ownership Turnover (Indicator) 1 4 0.75 0.25
Institutional Ownership (Russell Reindexing) 1 2 1.00
Ownership (Other)
Aggregate ? 7 21 0.14 0.38 0.29 0.19
Local Government Agency as Controlling Share- 2 4 1.00
holder (Indicator)
Dual Class (Indicator) 1 4 0.50 0.25 0.25
Management Owned (Indicator) 1 4 1.00
Shares Owned by Government Percentage 1 4 1.00
Dual Class Wedge 1 2 1.00
Largest Shareholders’ Stock Ownership 1 2 0.50 0.50
Keiretsu Firm Indicator 1 1 1.00
Board Characteristics
Aggregate ? 5 30 0.33 0.20 0.23 0.23
Indep. Directors Percentage 3 7 0.29 0.14 0.29 0.29
(Log) Number of Directors 2 6 0.17 0.33 0.33 0.17
(Log) Number Audit Committee Member 1 4 0.25 0.75
Indep. Auditors Percentage 1 4 0.25 0.50 0.25
Indep. Financial Experts on Audit Committee Per- 1 4 1.00
centage
(Log) Number Financial Experts Board 1 2 0.50 0.50
Indicator for General Councel Ascension 1 2 1.00
Duality 1 1 1.00
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Table A.3: Quantitative Synthesis of Determinants—Extended Version (Continued)

Empirical Evidence
Nr. Nr.
Pred. -/N -/Y +/N +/Y
Studies Regs

Executive Incentives
Aggregate ? 21 71 0.20 0.17 0.28 0.35
(Log) Vega CEO 8 14 0.29 0.14 0.21 0.36
(Log) Delta CEO 7 13 0.23 0.15 0.46 0.15
CEO Stock-Based Compensation 6 9 0.22 0.33 0.11 0.33
CEO After-Tax Compensation 3 4 0.50 0.50
CEO Option Compensation Percentage 3 4 0.50 0.50
Tax Director Ratio Variable Pay 1 5 0.40 0.20 0.40
CEO Total Compensation 1 4 0.50 0.50
(Log) Vega CFO 1 3 0.67 0.33
Industry Gap CEO Compensation 1 3 1.00
(Log) Delta NEO 1 2 0.50 0.50
(Log) Vega NEO 1 2 1.00
CEO Cashflow Performance Incentive 1 2 1.00
BU Manager After-Tax Compensation 1 1 1.00
BU Manager Stock-Based Compensation 1 1 1.00
CEO Inside Debt Incentives 1 1 1.00
CEO Tax Benefits Stock Options 1 1 1.00
Option Expense 1 1 1.00
Variable Manager Compensation 1 1 1.00
Executive Characteristics
Aggregate ? 6 25 0.16 0.60 0.12 0.12
CEO Gender 2 3 0.33 0.33 0.33
CFO Gender Transition Year 1 3 1.00
CEO Born Outside U.S. 1 2 1.00
CEO Fixed Effect 1 2 1.00
CEO Graduation in Recession 1 2 0.50 0.50
CEO Military Experience 1 2 1.00
CEO Political Affiliation 1 2 0.50 0.50
CFO Fixed Effect 1 2 1.00
Executive Fixed Effect 1 2 1.00
CEO Narcissism 1 1 1.00
CEO Overconfidence 1 1 1.00
Executive Fixed Tax Effect Down 1 1 1.00
Executive Fixed Tax Effect Up 1 1 1.00
Personal Tax Aggressiveness of Top Executives 1 1 1.00
(Indicator)
Executive Characteristics (Other: Skills)
Aggregate + 4 15 0.20 0.07 0.53 0.20
Managerial Ability 3 5 0.20 0.20 0.40 0.20
CEO Age 2 3 0.33 0.67
CEO Tenure 2 3 0.33 0.67
CEO Award 1 2 1.00
CEO MBA Education 1 2 1.00
Labor Organization
Aggregate - 1 4 1.00
Union Coverage 1 4 1.00
(continued on next page)

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Table A.3: Quantitative Synthesis of Determinants—Extended Version (Continued)

Empirical Evidence
Nr. Nr.
Pred. -/N -/Y +/N +/Y
Studies Regs

Internal Inf. Environment

Aggregate + 5 12 0.08 0.33 0.08 0.50
Other Internal Control Weaknesses 2 2 0.50 0.50
Financial Derivatives Usage 1 3 0.33 0.67
Whistleblowing (Indicator) 1 2 1.00
Earnings Announcement Speed 1 1 1.00
Management Forecast Accuracy 1 1 1.00
No Error Restatement (Indicator) 1 1 1.00
No Material Weaknesses (Indicator) 1 1 1.00
Tax Internal Control Weaknesses 1 1 1.00
Corp. Governance (Other)
Aggregate ? 4 10 0.40 0.10 0.40 0.10
Number of CG Strengths minus CG Concerns 2 2 0.50 0.50
Governance Index 1 4 1.00
Sum of CG Concerns 1 2 1.00
Sum of CG Strengths 1 2 0.50 0.50
External Inf. Environment
Aggregate - 20 43 0.28 0.19 0.26 0.28
Volatility RoA 10 17 0.24 0.18 0.24 0.35
Analyst Coverage 4 11 0.36 0.18 0.18 0.27
First Tax Article 1 2 1.00
Media Coverage 1 2 0.50 0.50
Most Media Tax Coverage 1 2 0.50 0.50
Most Negative Media Tax Coverage 1 2 0.50 0.50
Relative Volatility Earnings to OCF 1 2 1.00
Broker Mergers 1 1 1.00
Public Scrutiny Measure 1 1 1.00
Trading Volume 1 1 1.00
Volatility CF 1 1 1.00
Volatility Sales 1 1 1.00
BTC
Aggregate - 4 4 0.75 0.25
Booktax Conformity Level 4 4 0.75 0.25
Financial Rep. Incentives
Aggregate - 34 97 0.10 0.09 0.16 0.64
Discretionary Accruals 17 40 0.18 0.08 0.20 0.55
Abnormal Accruals 5 28 0.07 0.07 0.07 0.79
Total Accruals 3 5 0.20 0.80
Working Capital 2 3 0.33 0.67
BTDs 2 2 0.50 0.50
Working Capital (Change) 2 2 1.00
Discretionary Accruals (Change) 1 3 1.00
Absolute Accruals 1 2 1.00
Analyst Cash Flow Forecast (Indicator) 1 2 1.00
Financial Misstatement (Indicator) 1 2 0.50 0.50
Non-Disclosure of Geographic Earnings in the 1 2 1.00
Post SFAS 131 Period (Indicator)
Rights Offering in the Next Year (Indicator) 1 2 0.50 0.50
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Table A.3: Quantitative Synthesis of Determinants—Extended Version (Continued)

Empirical Evidence
Nr. Nr.
Pred. -/N -/Y +/N +/Y
Studies Regs
Shares Outstanding ≥ 110% of Last Year (Indica- 1 2 0.50 0.50
tor)
Affiliate IFRS Adoption (Indicator) 1 1 1.00
Financial Reporting Incentives 1 1 1.00
Corporate Political Activity
Aggregate + 4 28 0.04 0.04 0.93
Lobbying General (Indicator) 2 7 0.14 0.14 0.71
Lobbying for Tax Purposes (Indicator) 2 5 1.00
Strength of Political Connectedness 2 3 1.00
Campaign Contributions (Indicator) 1 4 1.00
Political Directors (Indicator) 1 4 1.00
(Log) Sum of Supported Candidates 1 2 1.00
(Log) Sum of Political Connectedness 1 1 1.00
Connected Board (Indicator) 1 1 1.00
Connected Chairman (Indicator) 1 1 1.00
Corporate Social Responsibility
Aggregate ? 5 22 0.32 0.05 0.36 0.27
Sum Negative CSR Activities 2 5 1.00
Sum Positive CSR Activities 2 5 0.20 0.80
Difference CSR Strengths and Weaknesses 2 4 0.25 0.25 0.50
Sum of Community Concerns 1 2 0.50 0.50
Sum of Community Strengths 1 2 0.50 0.50
Sum of Diversity Concerns 1 2 1.00
Sum of Diversity Strengths 1 2 0.50 0.50
Peer Tax Practice
Aggregate + 4 8 0.38 0.25 0.38
Auditor Interlock (Indicator) 1 1 1.00
BEA Region Link (Indicator) 1 1 1.00
Board Interlock (Indicator) 1 1 1.00
Focal Firm Shock Down in TA (Indicator) 1 1 1.00
Focal Firm Shock Up in TA (Indicator) 1 1 1.00
Industry Link (Indicator) 1 1 1.00
Industry Median CashETR 1 1 1.00
Proportion of Board Ties to Low-Tax Firms 1 1 1.00
Intermediaries
Aggregate + 11 36 0.14 0.17 0.22 0.47
Big Four Auditor (Indicator) 7 12 0.17 0.33 0.33 0.17
SecondTier Auditor (Indicator) 2 7 0.43 0.14 0.29 0.14
Tax Fees 2 7 0.29 0.71
Audit Firm Tax Expertise (Indicator) 1 4 1.00
Audit Fees 1 1 1.00
External Tax Return Preparer (Indicator) 1 1 1.00
Intermediary Bank (Indicator) 1 1 1.00
Internal Tax Return Preparer (Indicator) 1 1 1.00
Payments for Outside Assistance Percentage 1 1 1.00
Square of Payments for Outside Assistance Per- 1 1 1.00
centage
(continued on next page)

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Table A.3: Quantitative Synthesis of Determinants—Extended Version (Continued)

Empirical Evidence
Nr. Nr.
Pred. -/N -/Y +/N +/Y
Studies Regs

Statutory Tax Rate

Aggregate + 18 22 0.23 0.77
Stat TR 5 6 0.33 0.67
Average Foreign Stat TR larger U.S. Stat TR (In- 2 2 1.00
dicator)
C Measure 2 2 1.00
Applicable Tax Rate (Change) 1 2 1.00
Average Foreign Nonhaven Tax Rate 1 2 1.00
Low Affiliate Tax Rate 1 2 1.00
Affiliate Tax Rate 1 1 1.00
Applicable Tax Rate 1 1 1.00
CFC Stat TR 1 1 1.00
Headquarter State Stat TR 1 1 1.00
High Stat TR (Indicator) 1 1 1.00
U.S. Stat TR Minus Average Foreign Stat TR 1 1 1.00
WW Tax System
Aggregate ? 7 8 0.50 0.25 0.25
Tax System (Indicator) 4 4 0.75 0.25
Dividend Imputation 2 2 0.50 0.50
Business Friendliness Score in a State 1 1 1.00
Parent Territorial Tax System (Indicator) 1 1 1.00
Anti-TA Rules
Aggregate - 4 4 0.75 0.25
Thin-Cap Regime (Indicator) 2 2 1.00
CFC Rules (Indicator) 1 1 1.00
Headquarter Relocation Indicator 1 1 1.00
Tax Enforcement
Aggregate - 10 18 0.11 0.72 0.11 0.06
IRS Audit Probability 2 2 1.00
Perceived Tax Enforcement Simplicity 2 2 1.00
Tax Enforcement Percentile Ranking 1 4 1.00
SEC Scrutiny 1 3 1.00
Amnesty State (Indicator) 1 1 1.00
CiC Participation Knowledge 1 1 1.00
Cost of Tax Compliance 1 1 1.00
Industry Specialist Nearby (Indicator) 1 1 1.00
Log Distance to IRS Territory Manager 1 1 1.00
Tax Enforcement (Indicator) 1 1 1.00
Transfer Pricing Regulation (Indicator) 1 1 1.00
Country Characteristics
Aggregate ? 8 29 0.07 0.38 0.24 0.31
(Log) GDP Per Capita 3 4 0.50 0.25 0.25
LaPorta Legal Factor 2 2 1.00
Governor Turnover 1 4 1.00
NERI Institutional Characteristics Index 1 4 1.00
(Log) GDP 1 3 1.00
Social Capital 1 3 0.33 0.67
Total Government Deficit 1 2 1.00
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Table A.3: Quantitative Synthesis of Determinants—Extended Version (Continued)

Empirical Evidence
Nr. Nr.
Pred. -/N -/Y +/N +/Y
Studies Regs
(Log)GDP 1 1 1.00
Annual Stock Market Capitalization 1 1 1.00
GDP Growth 1 1 1.00
Number of Religious Adherents Per Capita 1 1 1.00
Population Growth 1 1 1.00
Republican Voting Percentage 1 1 1.00
Social Trust 1 1 1.00
Table A.3 presents the detailed results of our quantitative synthesis of the 114 tax avoidance determinants studies. The depicted
information is more detailed than our determinant discussion in Table A.2. Measure denotes different independent variables
included in the main regressions of the 114 studies considered, grouped by underlying constructs. Pred. repeats the predictions
from Table A.2 about the direction of the association between a determinant and corporate tax avoidance. Nr. Studies denotes
the number of studies that include a proxy for the determinant of interest in their main test(s) with a tax avoidance proxy as the
dependent variable. Some studies have multiple main regressions and use different tax avoidance proxies. In these cases, we
consider all these regressions in our analysis. Nr. Regs thus counts the number of regressions of all 114 studies that include the
respective proxy. In rare cases, a regression includes two or more proxies for the same determinant. Those cases are also counted
in Nr. Regs. Whenever necessary, we reverse coefficient signs to ensure directional comparability across all tax avoidance proxies.
For example, if a study originally reports a negative determinant coefficient and the dependent variable of the regression is a firm’s
GAAP ETR, we reverse the coefficient sign (from negative to positive) to accurately record the positive association between the
respective determinant and tax avoidance. In consequence, ‘-/N’ denotes a non-significant negative association with tax avoidance,
‘-/Y’ denotes a significant negative association with tax avoidance, ‘+/N’ denotes a non-significant positive association with tax
avoidance, and ‘+/Y’ denotes a significant positive association with tax avoidance. The numbers reported in columns -/N, -/Y, +N,
+/Y represent the number of the respective coefficient sign-significance combination relative to the number of regressions.

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 Table A.4: Quantitative Synthesis of Consequences—Extended Version

Empirical Evidence
Nr. Nr.
Pred. -/N -/Y +/N +/Y
Studies Regs
Transparency
Aggregate - 9 31 0.13 0.81 0.03 0.03
Insider Purchase Profitability 1 3 0.67 0.33
Insider Sale Profitability 1 3 0.67 0.33
Stock Price Crash Risk 1 3 1.00
Abs. Analyst Forecast Error 1 2 1.00
Abs. Analyst Net Income Forecast Error 1 2 1.00
Abs. Analyst Pre-Tax Income Forecast Error 1 2 1.00
Abs. Analyst Tax Expense Forecast Error 1 2 0.50 0.50
Av. Dispersion of Analyst Earnings Forecasts 1 2 1.00
(Log) Audit Fees 1 1 1.00
Abs. Value Discretionary Accruals 1 1 1.00
Av. Monthly Estimate of Adverse Selection Component 1 1 1.00
of Bid-Ask Spread
Dispersion of Analyst Earnings Forecast 1 1 1.00
Fog Index 10K 1 1 1.00
Fog Index Tax Footnote 1 1 1.00
Idiosyncratic Return Volatility 1 1 1.00
Insider Trading Profit 1 1 1.00
Negative Abnormal Accruals 1 1 1.00
Positive Abnormal Accruals 1 1 1.00
Relative R-Square Tax Income vs. Book Income 1 1 1.00
UTB Interest and Penalty Expense 1 1 1.00
Cost of Capital
Aggregate ? 7 23 0.04 0.09 0.04 0.83
CAPM Beta 1 6 1.00
(Log) Loan Interest Spread 1 3 1.00
Av. Premium (Ex-Ante Cost of Capital) 1 3 0.33 0.67
Cost of Equity Capital 1 3 0.33 0.67
FirmStock Return 1 3 1.00
Loan Spread 1 3 1.00
Cost of Debt 1 2 1.00
Debt
Aggregate ? 3 11 0.09 0.91
Debt Maturity 1 4 0.25 0.75
Total Debt 1 3 1.00
Total Debt Scaled by Sum of MV Eq and Total Debt 1 3 1.00
Debt-to-Assets Ratio 1 1 1.00
Firm Value
Aggregate ? 4 4 0.25 0.50 0.25
Cumulative Abnormal Returns 1 1 1.00
Takeover Premium 1 1 1.00
Tax Loss Carry Forward Valuation 1 1 1.00
Tobin’s Q 1 1 1.00
Table A.4 presents detailed results of our quantitative synthesis of the 23 tax avoidance consequences studies. Measure denotes different
dependent variables included in the main regressions of these studies, grouped by underlying constructs. Pred. denotes expected signs of
the relation between tax avoidance and constructs of interest. Nr. Studies denotes the number of studies including a consequence proxy
as dependent variable in their main test(s) and using a tax avoidance proxy as key explanatory variable. Nr. Regs counts the number of
relevant regressions of all 23 studies. When we count the number of positive and negative coefficients, we adjust the reported sign (if
necessary, depending on the dependent and independent variable) to reflect a construct’s association with tax avoidance. ‘-/N’ denotes a
non-significant negative association with tax avoidance, ‘-/Y’ denotes a significant negative association with tax avoidance, ‘+/N’ denotes a
non-significant positive association with tax avoidance, and ‘+/Y’ denotes a significant positive association with tax avoidance. The numbers
reported in columns -/N, -/Y, +N, +/Y represent the number of the respective coefficient sign-significance combination relative to the number
of regressions.

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 TRR 266 Accounting for Transparency

Contact:
Prof. Dr. Dr. h.c. Dr. h.c. Caren Sureth-Sloane
Paderborn University
Faculty of Business Administration and Economics
Department of Taxation, Accounting and Finance
Warburger Str. 100, 33098 Paderborn, Germany

[email protected]
www.accounting-for-transparency.de

Electronic copy available at: https://ssrn.com/abstract=3495496