Discussion of “Corporate Political Connections and Tax Aggressiveness”

Abstract

Kim and Zhang (2015) study the relation between corporate political connections and tax aggressiveness. In this discussion, I identify and evaluate three main limitations of their paper: the measurement of political connections, the empirical design, and the possible reasons behind the documented results. I build on these small shortcomings to provide suggestions for further contributions in this area of research. « Liens politiques des soci et es et audace de leurs positions fiscales » : une analyse critique R ESUM E Kim et Zhang (2015) etudient la relation entre les liens politiques des soci et es et l'audace de leurs positions fiscales. Dans son analyse critique, l'auteure rel eve et evalue trois limites principales de leur etude : la mesure des liens politiques, la conception empirique et les raisons pouvant expliquer les r esultats document es. L'observation de ces l eg eres faiblesses lui donne mati ere a sugg erer d'autres pistes dans ce domaine de recherche.

Giving too much and paying too little? The effect of corporate social responsibility on corporate lobbying efficacy: Evidence of tax aggressiveness

“…Similarly, the lagged ETR coefficients were positive and significant, confirming that there was dynamism in the model. Similar to earlier studies (e.g., Chen, Dyreng, & Li, 2015;Faccio, 2016;Hoopes, Mescall, & Pittman, 2012;Kim, Li, & Zhang, 2011;Kim & Zhang, 2016;Richter et al, 2009;Wilson, 2009), this study achieved the expected conclusion of a negative relationship and a dynamic Notes: The standard errors are reported in parentheses, except for the Hansen test, AR1, AR2, and Difference-in-Hansen test. ***, ** and * indicate significance at 1%, 5%, and 10% levels, respectively.…”

“…However, campaign contributions are not the only form of corporate political money involved, as the amount of money spent for lobbying purposes is substantially high (Kim & Zhang, 2016;Richter et al, 2009). Many empirical studies have shown that politically aligned firms are tax aggressive as they enjoy low detection risk, high risk-taking tendency, less corporate pressure for transparency, lower political costs associated with aggressive tax planning, and more information on future changes in tax regulation and enforcement (Barrick & Brown, 2016;Chen, Dyreng, & Li, 2015;Faccio, 2016;Martinez, 2017). Nevertheless, research on lobbying has neglected to investigate the issue of tax aggressiveness.…”

Political Connection, Institutional Ownership and Tax Aggressiveness in Indonesia

“…This causes conflict of interest between the director and the company owner in the context of taxation. Studies by reference [16] and [26] show the positive effect of director's political connection toward tax aggressiveness. Furthermore, research [30] explains that there are two sides in the relation between political connection and tax aggressiveness, which are political favoritism effect and bureaucratic incentive effect.…”

“…The use of ETR is based on some consideration. Firstly, ETR is one of tax aggressiveness parameters most often used in the study of tax aggressiveness (see [1], [9], [18], [16], [24], [27], [7], and [3]). Secondly, the approach of tax aggressiveness measurement using ETR can give the overall portrayal regarding the presence of tax expense change because it can represent the current tax value as well as the deferred tax [12].…”

“…However, they have inconsistent results. Some studies by reference [1], [4], [16], [27], [7], and [13] show positive effect of political connection toward tax aggressiveness, but studies by [30] and [24] show negative effect of political connection toward tax aggressiveness. This inconsistency might be caused by some factors such as the difference between national regulations, different variables of tax aggressiveness measured in the studies, different types of industries analyzed in the studies, as well as the period in which the studies took place.…”