The Impact of Private Equity Ownership on Portfolio Firms' Corporate Tax Avoidance

Badertscher, Brad A.; Katz, Sharon P.; Rego, Sonja O.

doi:10.2139/ssrn.1338282

Cited by 68 publications

(44 citation statements)

References 37 publications

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“…As the result, this study is still unable to confirm the research findings from the study of McGuire, Wang, and Wilson (2011) where firms with dual class stock ownership engage in lesser tax avoidance practices than other firms; and also from Badertscher, Katz and Rego (2011) who posited that private equity firms significantly increase the effectiveness of tax planning of firms they invest.…”

Section: Identifying Cta Related Factors Based On the Fraud Trianglecontrasting

confidence: 64%

“…McGuire, Wang, and Wilson (2011) found that firms with dual class stock ownership engage in less tax avoidance practices than other firms, consistent with managers who are insulated from takeovers avoid the costly effort associated with increased tax avoidance. Lastly, Badertscher, Katz and Rego (2011) provided the evidence that private equity firms significantly increase tax planning effectiveness of the firms in which they invest. This tax planning expertise persists even after private equity firm ownership is substantially reduced or terminated.…”

Section: Identifying Corporate Tax Avoidancementioning

confidence: 99%

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hareholder’s Political Motives and Corporate Tax Avoidance

Utomo¹,

Palil²,

Jaffar³

et al. 2015

AJAG

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Section: Identifying Cta Related Factors Based On the Fraud Trianglecontrasting

confidence: 64%

Section: Identifying Corporate Tax Avoidancementioning

confidence: 99%

hareholder’s Political Motives and Corporate Tax Avoidance

Utomo¹,

Palil²,

Jaffar³

et al. 2015

AJAG

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“…In addition, empirical measures of tax avoidance that rely on financial statements have known limitations in part because they capture variation in tax avoidance as well as the choice between conforming and nonconforming tax avoidance. 64 In addition, reliable empirical measures of some of the interesting cross-sectional determinants, such as governance, are difficult to obtain because corporate governance is 62 Badertscher et al (2010) encounter similar issues in their comparison of private equity backed firms and public firms. 63 Gupta and Newberry (1997) explain 38 to 48 percent of GAAP ETR based on basic economic characteristics of the firm.…”

mentioning

confidence: 99%

A review of tax research

Hanlon¹,

Heitzman²

2010

Journal of Accounting and Economics

2,133

646

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Abstract:In this paper, we present a review of tax research. We survey four main areas of the literature: 1) the informational role of income tax expense reported for financial accounting, 2) corporate tax avoidance, 3) corporate decision-making including investment, capital structure, and organizational form, and 4) taxes and asset pricing. We summarize the research areas and questions examined to date and what we have learned or not learned from the work completed thus far. In addition, we provide our opinion as to the interesting and important issues for future research. ______________________This paper was prepared for the 2009 Journal of Accounting and Economics Conference. We appreciate comments from Scott Dyreng, Mihir Desai (discussant), S.P. Kothari (editor), John Long, Ed Maydew, Lillian Mills, Tom Omer, Sonja Rego, Doug Shackelford, Terry Shevlin, Joel Slemrod, Cliff Smith, David Weber, Ryan Wilson, Jerry Zimmerman, George Zodrow, and conference participants at the JAE Conference as well as at the 2009 University of North Carolina Tax Symposium and the discussant there, Bill Gentry. All errors and omissions are our own. * Corresponding author: 100 Main Street, Cambridge, MA. email: mhanlon@mit.edu. 1 A Review of Tax Research IntroductionIn this paper, we review tax research in accounting as well as tax research in economics and finance to the extent that it is related to or is affected by research in accounting. Shackelford and Shevlin (2001) provide a careful and thorough review of empirical tax research in accounting in the prior Journal of Accounting and Economics review volume. Shackelford and Shevlin limit their review to research published in accounting outlets and describe the development of the relatively young archival, microeconomic-based income tax literature that arose from the Scholes andWolfson framework. In his discussion of the review, Maydew (2001) emphasizes the need for tax researchers in accounting to think more broadly and to incorporate more theory and evidence from economics and finance. We agree. Tax research has a long history in many disciplines; this fact cannot be ignored. Our goal in this paper is to integrate the theoretical and empirical tax research from accounting, economics, and finance, to summarize what is known and unknown, and to offer suggestions for future research.The multidisciplinary nature of tax research is what makes tax research exciting (yes, exciting), yet difficult. Tax research can be difficult not only because one has to follow tax studies in accounting, finance, economics, and law (through academic institutions, governmental agencies, and policy think tanks), but also because different disciplines often use different languages and have different perspectives. 1 For example, economists generally focus on tax compliance, tax incidence (such as who bears the corporate tax), investment and economic growth effects (such as how taxes 1 Slemrod (1992a) characterizes these differences as economists studying what corporations actually do and accountants stud...

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“…Badertscher et al (2009) empirically document that majority owned private equity backed firms face substantially lower marginal tax rates as a result of the tax shield of debt. Kaplan (1989b) has also shown empirically that interest deductibility benefits equal 21% of the premium paid in buyout transactions, whereas incremental depreciation tax benefits from marking up assets to market value equals 28% of the premium paid.…”

Section: Exogenous Cost Advantagesmentioning

confidence: 96%

Buying to Sell: A Theory of Buyouts

2010

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Private equity firms are an important part of the industrial restructuring process. We argue that the key is temporary ownership. Buying to sell induces aggressive restructuring since the equilibrium trade sale price increases both because the profits of the acquiring incumbent increase and the profits of non-acquiring incumbents decrease. Therefore, private equity backed firms are more leveraged and have managers with more ownership as compared to incumbents. By being outsiders, private equity firms specialize in restructuring to outbid incumbents with incentives to preemptively acquire targets. Welfare effects of buyouts are ambiguous, but consumers gain from a buyout.

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The Impact of Private Equity Ownership on Portfolio Firms' Corporate Tax Avoidance

Cited by 68 publications

References 37 publications

hareholder’s Political Motives and Corporate Tax Avoidance

hareholder’s Political Motives and Corporate Tax Avoidance

A review of tax research

Buying to Sell: A Theory of Buyouts

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