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UO Business: The Magazine, Summer 2017

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S E C T I O N 20 F A C U LT Y The assumption that low taxes equal risky tax choices isn't consistent with the evidence. A common refrain among many major segments of the business and financial community—including banks, audit firms, labor unions, and professional investment advisors—is that low tax payments are a warning light for excessive risk taking. That risk taking could lead to future company troubles, such as challenges by the IRS or lack of security due to dubious investments in low-taxing but unstable corners of the world. But do the numbers bear this speculation out? In "Is Tax Avoidance Related to Firm Risk?" published in the January/ February issue of The Accounting Review, Scharpf Professor of Accounting David Guenther, Johnson Memorial Professor of Accounting Steven Matsunaga, and Brian M. Williams, PhD '15, now of Indiana University, find that in most cases, the assumption that low taxes equal risky tax choices isn't consistent with the evidence. "The current statutory rate (35 percent) may not be to companies' liking, but we don't find that it's driving managers into risky behavior," Guenther said. "Our findings suggest a firm's low taxes to be more reflective of skilled management than risky management." The study's findings are based on analyses of the finances and taxes of a large sample of firms over a 25-year period. Effective tax rates were calculated both for taxes that firms acknowledged on financial statements and tax payments actually made over three-year and five-year periods. The authors write that the findings are most consistent with the idea that low effective tax rates reflect the extent to which a firm's operations allow it to take advantage of benign—but more favorable—transactions, not to differences in managers' willingness to reduce the firm's tax payments through risky tax positions. B Y A NNEM A R I E K NEP P ER - S JOBL OM

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