Does credit rating conservatism matter for corporate tax avoidance?

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

View graph of relations

Author(s)

Related Research Unit(s)

Detail(s)

Original languageEnglish
Pages (from-to)5681-5730
Journal / PublicationAccounting and Finance
Volume61
Issue number4
Online published3 Mar 2021
Publication statusPublished - Dec 2021

Abstract

Using the passage of Dodd-Frank and the US sovereign downgrade as quasi-natural experiments, we examine the effect of credit rating conservatism on corporate tax avoidance. We find that treatment firms engage in more tax-planning activities than control firms in both research settings. We further find that these effects are driven mainly by firms with large existing tax-planning capacity, firms with decreased use of external financing, firm with more reliance on rating information, and firms with weak external monitoring using the large Dodd-Frank sample. Overall, the findings provide evidence that credit rating conservatism plays a role in corporate tax-avoidance decisions.

Research Area(s)

  • Corporate tax avoidance, Credit rating agency, Credit rating conservatism, Dodd-Frank Wall Street Reform and Consumer Protection Act, US sovereign downgrade

Citation Format(s)

Does credit rating conservatism matter for corporate tax avoidance? / Chen, Tao; Leung, Sidney; Xie, Lingmin.

In: Accounting and Finance, Vol. 61, No. 4, 12.2021, p. 5681-5730.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review