Review of Accounting Studies

, Volume 23, Issue 3, pp 1042–1070 | Cite as

Corporate tax avoidance: data truncation and loss firms

  • Erin Henry
  • Richard SansingEmail author


Loss firms are an economically significant and growing segment of the population of publicly traded corporations. Relatively little is known about the tax positions of loss firms because the firms are typically dropped from tax avoidance studies. We develop a new measure of corporate cash tax avoidance that is meaningful for all observations and reflects the extent to which a firm is tax-favored. We examine the extent to which inferences about corporate tax avoidance over the past twenty-seven years change when we examine the full population of firms, as opposed to a profitable and/or taxable subsample. In contrast to prior research findings, our results suggest that on average firms are tax-disfavored, by which we mean cash taxes paid exceed the product of the firm’s pre-tax book income and the statutory tax rate. In addition, many industries that appear to be tax-favored in profitable subsamples are tax-disfavored when the entire population is examined. We also find that the extent to which firms are tax-disfavored is increasing over time, and that domestic firms are more tax-disfavored than multinationals.


Cash tax avoidance Truncation bias Tax avoidance Loss firms 

JEL classifications

H25 H32 M41 M48 



We thank Paul Fischer (editor), Kathleen Andries, T. J. Atwood, Michael Donohoe, Scott Dyreng, Jonathan Lewellen, Tom Omer, George Plesko, Leslie Robinson, Steve Utke, University of Texas Tax Readings Group, our anonymous reviewers, and participants at the University of Illinois, University of Illinois at Chicago, Tilburg University, University of Memphis, and Virginia Tech accounting workshops, the American Accounting Association Annual Meeting, and the American Taxation Association Midyear Meeting for helpful comments.


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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.University of MemphisMemphisUSA
  2. 2.Tuck School of Business at DartmouthHanoverUSA
  3. 3.CentER, Tilburg UniversityTilburgNetherlands

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