Firm’s Geographic Location and Tax Avoidance: Urban Versus Non-urban firms

• In Event: Taxation

Abstract

We examine the impact of geographic location on U.S. firms’ tax avoidance behavior. We consider urban firms as those firms headquartered in top 10 metropolitan statistical areas (MSAs) based on the 2000 Census and the rest are non-urban firms. Using both GAAP and cash effective tax rates to proxy for tax avoidance, we show that non-urban firms have higher level of tax avoidance than urban firms do. Our results are robust to alternative measures of geographic location, to the inclusion of additional control variables, and to different regression specification. Cross-sectional results reveal that the effect is more pronounced in firms facing greater financial constraints, in firms receiving less IRS attention, and in firms with less analyst following. We also use a propensity score matched sample to mitigate endogeneity concern.

Authors

• fuzhao zhou, State University of New York College at Brockport

• Yun Ke, University of Texas-El Paso