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Product market threats and tax avoidance

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  • Kim, Tae-Nyun
  • Lee, Pil-Seng

Abstract

In this paper, we find that product market threats increase firms’ tax avoidance. This association is especially observed for firms that pursue tax avoidance more than their optimal target level (i.e., actively tax-avoiding firms). In addition, among these firms with active tax avoidance practices, firms with weaker corporate governance structure, lower financial flexibility, and greater predation risk are more likely to experience the positive relationship between product market threats and tax avoidance. Further evidence suggests that higher levels of tax avoidance driven by product market threats do not come with higher levels of tax uncertainty and rather positively affect firms’ profitability. This result highlights the decoupling relationship between tax avoidance and tax uncertainty.

Suggested Citation

  • Kim, Tae-Nyun & Lee, Pil-Seng, 2023. "Product market threats and tax avoidance," International Review of Financial Analysis, Elsevier, vol. 86(C).
    • Handle: RePEc:eee:finana:v:86:y:2023:i:c:s1057521923000443
    DOI: 10.1016/j.irfa.2023.102528
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    1. Chalevas, Constantinos G. & Doukakis, Leonidas C. & Karampinis, Nikolaos I. & Pavlopoulou, Olga-Chara, 2024. "The impact of family ownership on tax avoidance: International evidence," International Review of Financial Analysis, Elsevier, vol. 94(C).

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    More about this item

    Keywords

    Product market threats; Product market competition; Tax avoidance; Speed of adjustment; Corporate governance; Financial constraints; Predation risk;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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