The impact of private equity ownership on corporate tax avoidance
By: Brad Badertscher, Sharon P. Katz, sonja Olhoft Rego
Contributors: Katz, Sharon (Sharon P.); Rego, Sonja Olhoft; Harvard Business School
Series: Working paper / Harvard Business School -- 10-004; Working paper (Harvard Business School) -- 10-004.
Publisher: Harvard Business School
Published: 2009
Place of publication: [Boston]
Language: eng
Number of pages: 53
Description: This study investigates how private equity ownership affects corporate tax avoidance. Private equity (PE) firms have been accused of aggressively managing their own tax liabilities and those of their portfolio firms. We investigate the latter assertion based on a sample of private firms for which there is financial statement data available. We first document that firms significantly alter their tax avoidance patterns in anticipation of 'going public' and 'going private' transactions. We then find that majority PE-backed private firms engage in less book-tax nonconforming tax planning than public years; nonetheless, they exhibit substantially lower marginal tax rates. We attribute these results to the larger debt tax shields of majority-owned PE-backed firms, which reduce their need for nonconforming (i.e., more aggressive) tax strategies. Lastly, we examine how different private ownership structures (e.g., majority PE ownership vs. management-owned) affect tax planning at private firms. Our results indicate that majority-owned PE-backed firms engage in more book-tax conforming and nonconforming tax planning than other private firms. We attribute these results to the managerial sophistication and resources available to majority-owned PE-backed firms.
Notes: "July 2009"--Publisher's website.

"July 21, 2009"--added t.p.

Includes bibliographical references.