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Tax-strategy-related words, firm’s ability, and tax avoidance

Author

Listed:
  • Yicheng Wang

    (Xi’an Jiaotong-Liverpool University)

  • Brian Wright

    (Xi’an Jiaotong-Liverpool University)

Abstract

This study examines the linguistic cues of tax avoidance in 10-K filings by constructing a tax-strategy-related (TSR) word list. We find a positive relationship between a firm's innate ability to avoid taxes, measured by the occurrence of TSR words, and the level of tax avoidance. Our results are robust across multiple measures and unaffected by firms' disclosure behavior or managerial ability. Additionally, investors negatively value the disclosure of TSR words in well-governed and less tax-avoiding firms.

Suggested Citation

  • Yicheng Wang & Brian Wright, 2024. "Tax-strategy-related words, firm’s ability, and tax avoidance," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 21(4), pages 685-713, December.
    • Handle: RePEc:pal:ijodag:v:21:y:2024:i:4:d:10.1057_s41310-023-00214-3
    DOI: 10.1057/s41310-023-00214-3
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