Fiscal Year-Ends and Tax Avoidance

• In Event: Tax

Abstract

The literature identifies firms' peers typically by their industry classification and shows the peer influence or spillover effect within the same industry. We approach the issue from a different and special perspective by looking at firms' fiscal cycles. We expect synchronized cycles to create peer pressure among firms. Considering the fact that more than 60% of U.S. firms' year-ends fall on December 31, we examine the tax behaviors of those firms in comparison with others. Using five tax avoidance measures from the literature, we find that those December firms consistently display more tax avoidance activities than non-December firms do. On average, firms that change from non-December to December year-ends also experience significant increases in their tax avoidance levels. The above results are supporting our conjecture that the time-based peer pressure leads to firms' aggressive tax planning.

Authors

• Lingxiang Li, State University of New York-Old Westbury

• Ken Winkelman, SUNY-Old Westbury

• Jeff D'Amico, SUNY-Old Westbury