Author's School

Olin Business School

Language

English (en)

Date of Award

5-25-2024

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Chair and Committee

Richard Frankel

Committee Members

na

Abstract

This dissertation documents that corporate tax planning innovations, proxied by decreases in effective tax rates, contribute to excess shareholder returns and, thereby, a competitive advantage. Compared to other improvements in firm performance, tax planning innovations have smaller factor loadings and explain fewer variations in excess returns. Notably, sales growth explains more than seven times the variations in excess returns compared to tax planning innovations. Tax planning even falls behind interest expense reductions, given the challenge of altering firm capital structure. To address the concern that changes in firm performance drive the association between tax planning innovations and excess returns, I explore the market reactions to the legislation events of the Tax Cuts and Jobs Act (TCJA). Consistent with a lower statutory rate reducing the benefit of tax planning, firms with stronger tax planning competitive advantage before TCJA experienced more negative market reactions. Overall, my study suggests that tax planning is not a major driver of competitive advantages.

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Accounting

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