Effective Tax Planning

The Accounting Review, Forthcoming

51 Pages Posted: 18 Feb 2021

See all articles by Casey M. Schwab

Casey M. Schwab

University of North Texas

Bridget Stomberg

Indiana University - Kelley School of Business

Brian Williams

Indiana University - Kelley School of Business - Department of Accounting

Date Written: February 7, 2021

Abstract

We use data envelopment analysis (DEA) to develop a measure of effective tax planning that is theoretically aligned with the Scholes-Wolfson paradigm and captures how efficiently firms maximize after-tax returns given their operating, investing, and financing decisions. We then (1) document the measure is associated with higher after-tax returns to provide assurance DEA achieves its objective in our setting, (2) demonstrate the measure is incremental to cash ETRs in predicting after-tax returns, (3) validate the measure by showing its association with lower tax and non-tax costs, and (4) provide evidence the measure captures something about taxes distinct from overall firm performance. This measure is useful to researchers given the known limitations of ETRs as a measure of tax planning.

Suggested Citation

Schwab, Casey M. and Stomberg, Bridget and Williams, Brian, Effective Tax Planning (February 7, 2021). The Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3781011 or http://dx.doi.org/10.2139/ssrn.3781011

Casey M. Schwab

University of North Texas ( email )

1155 Union Circle #305340
Denton, TX 76203
United States

Bridget Stomberg

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
Indianapolis, IN 47405-1701
United States

Brian Williams (Contact Author)

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

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