The economic effects of financial derivatives on corporate tax avoidance

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This study estimates the corporate tax savings from financial derivatives. I document a 3.6 and 4.4 percentage point reduction in three-year current and cash effective tax rates (ETRs), respectively, after a firm initiates a derivatives program. The decline in cash ETR equates to $10.69 million in tax savings for the average firm and $4.0 billion for the entire sample of 375 new derivatives users. Of these amounts, $8.75 million and $3.3 billion, respectively, are incremental to tax savings that theory suggests are a byproduct of risk management. Collectively, these findings provide economic insight into the prevalence of derivatives-based tax avoidance.

Original languageEnglish (US)
Pages (from-to)1-24
Number of pages24
JournalJournal of Accounting and Economics
Issue number1
StatePublished - Feb 1 2015


  • Derivatives
  • Effective tax rate
  • Financial instruments
  • Tax avoidance

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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