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How to Prevent Time Preference Risk: Evidence from Tax Avoidance

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  • Jing-Wen Chang
  • Huang-Ping Yen
  • Sijia Luo

Abstract

This paper investigates whether future time reference in languages affects corporate tax avoidance. Consisting of 265,652 firm-year observations, we cover 42 countries during the 1989 to 2020 periods. The results show that those firms have relatively low cash effective tax rates when their country’s language does not distinguish grammatically between future and present events. Thus, adopting IFRS accounting and the local legal environment could moderate this condition. Our findings remain after considering endogeneity problems and implementing a series of robustness tests. Moreover, we provide additional evidence regarding the effects of formal institutions on tax avoidance and a new approach for regulators to encourage tax compliance and evaluate their local legal environments to more effectively reducing financial risk.

Suggested Citation

  • Jing-Wen Chang & Huang-Ping Yen & Sijia Luo, 2022. "How to Prevent Time Preference Risk: Evidence from Tax Avoidance," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(15), pages 4247-4260, December.
    • Handle: RePEc:mes:emfitr:v:58:y:2022:i:15:p:4247-4260
    DOI: 10.1080/1540496X.2022.2094760
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