TY - JOUR
T1 - The economic effects of financial derivatives on corporate tax avoidance
AU - Donohoe, Michael P.
N1 - Publisher Copyright:
© 2014 Elsevier B.V.
Copyright:
Copyright 2014 Elsevier B.V., All rights reserved.
PY - 2015/2/1
Y1 - 2015/2/1
N2 - 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.
AB - 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.
KW - Derivatives
KW - Effective tax rate
KW - Financial instruments
KW - Tax avoidance
UR - http://www.scopus.com/inward/record.url?scp=84918827905&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84918827905&partnerID=8YFLogxK
U2 - 10.1016/j.jacceco.2014.11.001
DO - 10.1016/j.jacceco.2014.11.001
M3 - Article
AN - SCOPUS:84918827905
SN - 0165-4101
VL - 59
SP - 1
EP - 24
JO - Journal of Accounting and Economics
JF - Journal of Accounting and Economics
IS - 1
ER -