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Protection of trade secrets and corporate tax avoidance: Evidence from the inevitable disclosure doctrine

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  • Ding, Rong
  • Sainani, Sushil
  • (John) Zhang, Ziyang

Abstract

In this study, we investigate the effect of the protection of trade secrets through the adoption of the inevitable disclosure doctrine (IDD) by US state courts on corporate tax avoidance. We suggest a positive impact of IDD adoption on tax avoidance, because IDD adoption reduces information transparency by increasing the benefit of nondisclosure and, hence, creates greater opportunities for firms to engage in more aggressive tax avoidance activities. Based on a large sample of US firms between 1977 and 2011, we find a significant increase in tax avoidance for firms in states that have adopted the IDD, compared with firms in states that have not adopted it. We further show that the impact of the IDD on corporate tax avoidance is more salient in firms with lower internal information quality. Our findings have important implications for both investors and regulators.

Suggested Citation

  • Ding, Rong & Sainani, Sushil & (John) Zhang, Ziyang, 2021. "Protection of trade secrets and corporate tax avoidance: Evidence from the inevitable disclosure doctrine," Journal of Business Research, Elsevier, vol. 132(C), pages 221-232.
    • Handle: RePEc:eee:jbrese:v:132:y:2021:i:c:p:221-232
    DOI: 10.1016/j.jbusres.2021.03.042
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    Cited by:

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    2. Xi Zhong & Liuyang Ren & Ge Ren, 2023. "Performance shortfall, institutional logic and firms’ tax avoidance," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 13(4), pages 855-886, December.
    3. Al-Hadi, Ahmed & Habib, Ahsan, 2023. "Consequences of state-level regulations in accounting, finance, and corporate governance: A review," Advances in accounting, Elsevier, vol. 60(C).
    4. Cao, Zhangfan & Chen, Steven Xianglong & Lee, Edward, 2022. "Does business strategy influence interfirm financing? Evidence from trade credit," Journal of Business Research, Elsevier, vol. 141(C), pages 495-511.

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    More about this item

    Keywords

    Trade secrets; Inevitable Disclosure Doctrine; IDD; Tax avoidance; Tax planning;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • K2 - Law and Economics - - Regulation and Business Law
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting

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