Climate risk and corporate tax avoidance: International evidence

Abstract

Research Question/Issue This study investigates the relationship between climate risk and corporate tax avoidance. Previous studies on this relationship generate mixed results, theoretically and empirically. Our study addresses this empirical question by providing new evidence using a large international sample and a novel proxy for climate risk. Research Findings/Insights The empirical results show that higher climate risk is associated with higher tax avoidance. Mechanism analyses show that this positive association is due to the incentive to reserve cash in response to tightened financial constraints, rather than tax deductions granted by governments. This result is more pronounced in countries or regions that have poorer corporate governance and information environments, lower economic development, and a more uncertain policy environment. Theoretical/Academic Implications Our evidence highlights the importance of considering the role of climate risk in corporate tax policies and of comparing the link between climate risk and tax avoidance across countries. Practitioner/Policy Implications Echoing environmental non‐governmental organizations' (NGOs) recent call on governments to strengthen tax administration, our study has policy implications that emphasize the necessity for policymakers to consider the link between climate risk and tax avoidance.

The Effects of Extreme Climate Events on Green Technology Innovation in Manufacturing Enterprises

“…Although recent studies have identified the broad adverse effects of extreme climate events on firms (e.g., Huang et al, 2018Huang et al, , 2022Rao et al, 2022), research on how firms adapt to climate extremes remains insufficient. Existing studies on adaptation behaviors of firms to extreme climate events mainly focus on financial management, such as adjusting debt structure (Huang et al, 2018;Javadi et al, 2020), increasing cash holding (Zhang et al, 2023), and even tax avoidance (Ni et al, 2021). This study contributes to the literature by documenting that manufacturing enterprises may increase green technology innovation as an adaptation response to extreme precipitation events.…”

“…Huang et al (2018) suggest that firms in countries with severe climate risks are prone to hold more cash and pay lower cash dividends. Moreover, corporate tax avoidance is a feasible action after extreme climate events (Ni et al, 2021). Finally, manufacturing enterprises increase socially responsible investments, in response to unpredictable climate change shocks (Fiordelisi et al, 2023).…”

Corporate Governance through the Lens of 'Corporate Governance: An International Review- CGIR': A Three Decade Retrospective Analysis

“…For example, some papers have tackled the analysis in the context of large public companies (Perrini, Rossi & Rovetta, 2008;Chen, Dyball & Wright , 2009;Solomon, Lin, Norton & Solomon , 2003), family-controlled firms (van Essen, Strike, Carney & Sapp, 2015;Minichilli, Brogi & Calabrò, 2016), and financial institutions (Hackethal, Schmidt & Tyrell, 2005;Kaymak & Bektas, 2008;Yeh, Chung & Liu, 2011). Another stream of research provided a systematic review for CG prior literature (Farah, Elias, Aguilera & Abi Saad, 2021), cross-regional studies (Wu, Xu & Yuan, 2009), CSR (Frynas, 2008;Mackenzie, 2007), CG codes and regulation (Béthoux, Didry & Mias, 2007;Bondy, Matten & Moon, 2008), women on boards (Gabaldon, De Anca, Mateos De Cabo & Gimeno, 2016), environmental reporting (Gibson & O'Donovan, 2007;Ni, Chen, Li & Yang , 2021), risk-taking (Mishra, 2011) financial reporting and earning management (Hamm, Jung & Park, 2021), and on country wealth and income inequality (Brou, Chatterjee, Coakley, Girardone et al, 2021). From another perspective, the three top-cited publications of the cluster are "Does the presence of institutional investors influence accruals management?…”

COVID-19 and corporate tax avoidance: International evidence

“… Xu and Moser (2021) report that terrorist attacks lead to corporate tax avoidance. Ni et al (2021) underscore the importance of climatic risks in tax avoidance. Similarly, Richardson, Lanis, et al (2015) and Richardson, Taylor, et al (2015) document that firms avoid taxes during the GFC.…”