The taxman cometh: Does tax uncertainty affect corporate cash holdings?
We examine whether firms hold more cash in the face of tax uncertainty. Because of gray areas in the tax law and aggressive tax avoidance, the total amount of tax that a firm will pay is uncertain at the time it files its returns. The tax authorities can challenge and disallow the firm’s tax positio...
| Main Authors: | , , |
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| Other Authors: | |
| Format: | Article |
| Language: | English |
| Published: |
Springer-Verlag
2017
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| Online Access: | http://hdl.handle.net/1721.1/110929 https://orcid.org/0000-0002-7009-1310 |
| _version_ | 1826216913235083264 |
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| author | Hanlon, Michelle Maydew, Edward L. Saavedra, Daniel |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Hanlon, Michelle Maydew, Edward L. Saavedra, Daniel |
| author_sort | Hanlon, Michelle |
| collection | MIT |
| description | We examine whether firms hold more cash in the face of tax uncertainty. Because of gray areas in the tax law and aggressive tax avoidance, the total amount of tax that a firm will pay is uncertain at the time it files its returns. The tax authorities can challenge and disallow the firm’s tax positions, demanding additional cash tax payments. We hypothesize that firms facing greater tax uncertainty hold cash to satisfy these potential future demands. We find that both domestic firms and multinational firms hold larger cash balances when subject to greater tax uncertainty. In terms of economic significance, we find that the effect of tax uncertainty on cash holdings is comparable to that of repatriation taxes. Our evidence adds to knowledge about the real effects of tax avoidance and provides a tax-based precautionary explanation for why there is such wide variation in cash holdings across firms. |
| first_indexed | 2024-09-23T16:55:08Z |
| format | Article |
| id | mit-1721.1/110929 |
| institution | Massachusetts Institute of Technology |
| language | English |
| last_indexed | 2024-09-23T16:55:08Z |
| publishDate | 2017 |
| publisher | Springer-Verlag |
| record_format | dspace |
| spelling | mit-1721.1/1109292022-10-03T09:10:20Z The taxman cometh: Does tax uncertainty affect corporate cash holdings? Hanlon, Michelle Maydew, Edward L. Saavedra, Daniel Sloan School of Management Hanlon, Michelle We examine whether firms hold more cash in the face of tax uncertainty. Because of gray areas in the tax law and aggressive tax avoidance, the total amount of tax that a firm will pay is uncertain at the time it files its returns. The tax authorities can challenge and disallow the firm’s tax positions, demanding additional cash tax payments. We hypothesize that firms facing greater tax uncertainty hold cash to satisfy these potential future demands. We find that both domestic firms and multinational firms hold larger cash balances when subject to greater tax uncertainty. In terms of economic significance, we find that the effect of tax uncertainty on cash holdings is comparable to that of repatriation taxes. Our evidence adds to knowledge about the real effects of tax avoidance and provides a tax-based precautionary explanation for why there is such wide variation in cash holdings across firms. 2017-08-09T17:16:00Z 2018-03-04T06:00:06Z 2017-05 2017-08-08T04:02:55Z Article http://purl.org/eprint/type/JournalArticle 1380-6653 1573-7136 http://hdl.handle.net/1721.1/110929 Hanlon, Michelle et al. “The Taxman Cometh: Does Tax Uncertainty Affect Corporate Cash Holdings?” Review of Accounting Studies 22, 3 (May 2017): 1198–1228 © 2017 Springer Science+Business Media New York https://orcid.org/0000-0002-7009-1310 en http://dx.doi.org/10.1007/s11142-017-9398-y Review of Accounting Studies Creative Commons Attribution-Noncommercial-Share Alike http://creativecommons.org/licenses/by-nc-sa/4.0/ Springer Science+Business Media New York application/pdf Springer-Verlag Springer US |
| spellingShingle | Hanlon, Michelle Maydew, Edward L. Saavedra, Daniel The taxman cometh: Does tax uncertainty affect corporate cash holdings? |
| title | The taxman cometh: Does tax uncertainty affect corporate cash holdings? |
| title_full | The taxman cometh: Does tax uncertainty affect corporate cash holdings? |
| title_fullStr | The taxman cometh: Does tax uncertainty affect corporate cash holdings? |
| title_full_unstemmed | The taxman cometh: Does tax uncertainty affect corporate cash holdings? |
| title_short | The taxman cometh: Does tax uncertainty affect corporate cash holdings? |
| title_sort | taxman cometh does tax uncertainty affect corporate cash holdings |
| url | http://hdl.handle.net/1721.1/110929 https://orcid.org/0000-0002-7009-1310 |
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