Abstract
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 language | English (US) |
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Pages (from-to) | 1-24 |
Number of pages | 24 |
Journal | Journal of Accounting and Economics |
Volume | 59 |
Issue number | 1 |
DOIs | |
State | Published - Feb 1 2015 |
Keywords
- Derivatives
- Effective tax rate
- Financial instruments
- Tax avoidance
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics