Tax Policy Uncertainty and Investment in Tax Planning: Firm-Level Evidence

Abstract

Using a large sample of U.S. firms between 2003 and 2019, this paper employs a novel firm-level measure of tax policy uncertainty from conference call transcripts and finds that investment in tax planning is significantly lower when perceived tax policy uncertainty is higher. Cross-sectional analyses show that this negative relationship is mitigated by expected future profitability and managerial ability. Further analyses reveal several tax and nontax shareholder consequences of tax policy uncertainty, including lower tax planning effectiveness, higher tax risk, more cash holding, and lower firm value. Overall, our study contributes to the literature by showing how crosssectionally heterogeneous tax policy uncertainty affects corporate tax decisions.

Department(s)

Finance, Economics and Risk Management

Document Type

Article

DOI

10.2308/JATA-2022-015

Keywords

auditor-provided tax services, investment in tax planning, tax policy uncertainty

Publication Date

3-1-2026

Journal Title

Journal of the American Taxation Association

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