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Geopolitical risk, financial constraints, and tax avoidance

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  • Haque, Tariq
  • Pham, Thu Phuong
  • Yang, Jiaxin

Abstract

We investigate the impact of geopolitical risk on corporate tax avoidance using a sample of all public US firms from 2005 to 2019. We find that an increase in geopolitical risk leads to higher engagement in corporate tax avoidance, as measured by a decline in cash-effective tax rates in both the short run and long run. This effect is more pronounced for firms with higher financial constraints. Furthermore, using the 2016 OPEC agreement as a geopolitical shock, we find that oil-related firms engaged in more aggressive tax avoidance activities than their non-oil-related counterparties. Our findings are robust to an alternative measure of industry exposure.

Suggested Citation

  • Haque, Tariq & Pham, Thu Phuong & Yang, Jiaxin, 2023. "Geopolitical risk, financial constraints, and tax avoidance," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 88(C).
    • Handle: RePEc:eee:intfin:v:88:y:2023:i:c:s1042443123001269
    DOI: 10.1016/j.intfin.2023.101858
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