Is there a relation between labor investment inefficiency and corporate tax avoidance?

Grantley Taylor, Ahmed Al-Hadi, Grant Richardson, Usamah Alfarhan, Khamis Al-Yahyaee

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

This paper investigates the relation between labor investment inefficiency and corporate tax avoidance. Employing a large sample of 61,542 U.S. firm-year observations over the 1962–2014 period, our regression results show that labor investment inefficiency is significantly positively related to tax avoidance. More specifically, we find that a one standard deviation of labor investment inefficiency leads to a 0.71% reduction in the accounting effective tax rate. Our findings are robust to endogeneity concerns, alternative proxy measures of tax avoidance and labor investment efficiency, and additional control variables pertaining to accounting quality and managerial ability. Taken together, our regression results show that labor investment inefficiency is an important determinant of corporate tax avoidance.
Original languageEnglish
Pages (from-to)185-201
Number of pages17
JournalEconomic Modelling
Volume82
DOIs
Publication statusPublished - Nov 2019

Keywords

  • Firm behavior
  • Labor investment inefficiency
  • Corporate tax avoidance

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