ETD

Archivio digitale delle tesi discusse presso l'Università di Pisa

Tesi etd-02282022-162836


Tipo di tesi
Tesi di dottorato di ricerca
Autore
GABRIELLI, ALESSANDRO
URN
etd-02282022-162836
Titolo
Tax Avoidance and Financial Distress
Settore scientifico disciplinare
SECS-P/07
Corso di studi
ECONOMIA AZIENDALE E MANAGEMENT
Relatori
tutor Prof. Greco, Giulio
Parole chiave
  • tax avoidance; financial distress
Data inizio appello
07/03/2022
Consultabilità
Non consultabile
Data di rilascio
07/03/2062
Riassunto
Tax avoidance has been a crucial issue for governments to address for decades, fuelling an intense debate among both scholars and pratictioners. While it is a common stand that tax avoidance may severely threaten a government’s budgetary spending potential, tax avoidance - especially in its legal and benign forms – can also be a relevant source of funding for many businesses, helping them, and eventually the State, to avoid the negative consequences of corporate liquidations and financial distruption. This thesis is organized as a collection of papers examining three distinct, yet highly intertwined, topics regarding the relationship between corporate tax avoidance and financial distress.
In the first paper, I draw on the Jensen’s free cash flow hypothesis to provide a conceptual framework that can help to explain the relationship between tax avoidance and the cost-of-capital, when both the association between tax avoidance and the other source of capital, as well as agency conflicts, are considered. The conceptual framework developed suggests that the observed inconsistencies in previous studies on such association can be explained as the result of three different effects: (a) an additive effect of tax avoidance on the firms’ free cash flow; (b) a crowding-out effect of tax avoidance on debt; (c) a rebounding effect on the agency conflicts on the free cash flow determined by changes in the debt policy as induced by changes in corporate tax avoidance.
In the second paper, I examine the moderating role of corporate lifecycle on the association between tax avoidance and financial default risk, providing empirical evidence that can be useful to reconcile mixed findings from previous research. By investigating a sample of U.S. public firms from the 1989 to 2016, the research shows that the association between tax avoidance and financial default risk varies across the stages of a firm’s lifecycle. Specifically, the results of the analyses indicate that tax avoidance is positively associated with the financial default risk in the growth and mature stage, consistent with a risk increasing effect. Conversely, it is negatively associated with financial default risk in the introduction and decline stage, consistent with a cash generating effect.
Finally, in the third paper, I investigate whether tax benefits associated with the use of tax losses are a determinant of corporate reorganization under the Chapter 11 of the U.S. Bankruptcy Code. The research examines a sample of U.S. public firms for over a 30-year period. After controlling for the firm’s profitability, leverage, liquidity, size, and expected post- reorganization tax rate, the research provides empirical evidence that firms with higher net operating losses are more likely to file under Chapter 11. The study also shows that the after the repeal of the Michigan Single Business Tax and subsequent corporate tax rate changes in this state, the number of corporate reorganizations under Chapter 11 substantially decreased owing to a reduction of tax benefits associated with the procedure. Additional analyses also provide evidence that firms emerging from corporate reorganization procedures have lower effective tax rates, consistent with filing firms being able to exploit such tax benefits once emerged from the procedure.
Collectively, the results of this thesis highlight that tax avoidance can be a major source of cash to avoid financial difficulties. Relatedly, the thesis suggests the importance of tax incentives as a means to encourage corporate reorganization aimed at solving financial distress. This thesis can contribute to advance the knowledge on the consequences of tax avoidance. Also, it can contribute to financial distress research. Besides contributing to the academic research, the results of the thesis can also be of interest for policymakers, regulating authorities, investors, lenders, and other capital market participants
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