Credit Rating Conservatism and Corporate Tax Avoidance: Evidence from a Quasi Natural Experiment


Student thesis: Doctoral Thesis

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  • Lingmin XIE

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Awarding Institution
Award date20 Jan 2017


The Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA) provides an exogenous shock to increasing credit rating conservatism. Using the passage of the DFA as a quasi-natural experiment, this study examines the causal effect of credit rating conservatism on corporate tax avoidance. This thesis shows that credit rating conservatism and the resulting financial pressure affect corporate tax avoidance. Specifically, I find that firms respond to an exogenous shock to credit rating conservatism and financial pressure by engaging in more aggressive tax planning activities compared with firms that do not experience such an exogenous increase in rating conservatism. I further find that these effects are driven by financially constrained firms and firms with decreased use of external finances, whereas they are less pronounced for firms with strong external monitoring. Overall, the findings provide evidence that credit rating conservatism plays an important role in corporate tax-avoidance decisions and that the DFA has economic consequences for corporate tax policy.

    Research areas

  • Credit rating conservatism, credit rating agency, financial constraint, corporate tax avoidance, Dodd-Frank Wall Street Reform and Consumer Protection