AN EMPIRICAL INVESTIGATION OF FACTORS INFLUENCING CORPORATE TAX-MOTIVATED INCOME SHIFTING.

摘要

There is a growing literature attempting to understand how firms react to tax incentives. A few papers examine how firms plan for anticipated statutory income tax rate reductions. It is clear from this research that many firms shift the timing of transactions to defer income out of higher tax rate years and into lower tax rate years. Collectively, this research answers the question: "What items of income do firms shift across time to reduce their tax payments?" However, academics do not have an answer to a related question: "Which firms shift income across time to reduce their tax payments?" Prior research addressing this issue has generated inconsistent findings. In particular, some research documents that larger firms shift a higher proportion of their income than smaller firms. Other studies reach the opposite conclusions. Further, some studies document that firms facing larger tax rate reductions defer more income. Other studies fail to reach this conclusion. This dissertation addresses those inconsistent findings. It also addresses the issue of whether firms that shift income consider the costs that their shifting imposes on their customers.; A firm will shift income across time only if the benefits of doing so exceed the related costs. The Tax Reform Act of 1986 reduced tax rates for corporate taxpayers over two tax years, resulting in tax rate reductions of from zero to twelve percentage points. I propose that firms shifted income during this rate phase-in period only if the tax benefits exceeded the cost of reducing financial accounting income plus the costs the shifting firm imposed on its customers. The hypotheses tested in this study include: (l) firms facing greater tax rate reductions shift more income than firms facing smaller tax rate reductions. (2) Larger firms defer more income than smaller firms because large firms are more sophisticated tax planners than smaller firms. (3) Sellers of durable goods defer less gross profit than sellers of nondurable goods because sellers of durable goods impose higher tax costs on their customers. (4) Firms with higher market power shift more gross profit than firms with lower market power because high market power firms can force their customers to absorb some of the costs of shifting income.; One result of this research is that there is no evidence that firms facing larger tax rate decreases defer more income than firms facing lower tax rate decreases. In addition, this research shows that, controlling for a scale effect (i.e., larger firms can defer more income because they have more income to defer), larger firms actually defer less income than smaller firms. Also, this study documents that sellers of durable goods defer less gross profit than sellers of nondurable goods. This result is consistent with shifting firms considering the tax position of their customers when deciding whether to engage in tax-motivated income shifting. As expected, the evidence supporting this result is stronger when I exclude firms that operate in multiple markets, despite the fact that the sample size is cut in half. Finally, firms with relatively higher market power shift more income than firms with less market power.