Keywords

tax settlements, machine learning, textual analysis, tax uncertainty, cash holdings

Abstract

Corporate income tax settlements represent a substantial cash outflow for many U.S. firms. This study develops an ex-ante measure of future corporate income tax settlement likelihood using quantitative and qualitative information from Form 10-K. We find that both quantitative and qualitative information are incrementally useful in predicting future tax settlements. We then use our new measure to examine the association between predicted future tax settlements and cash holdings. In contrast with prior research documenting a positive association between reserves for uncertain tax positions and cash holdings, we find that firms with a higher likelihood of future tax settlements hold less cash than firms with a lower likelihood of future tax settlements. Taken together, our study provides an ex-ante measure of tax settlement likelihood that can be used by future researchers, and our findings suggest a more nuanced relation between tax uncertainty and cash holdings.

Original Publication Citation

"Estimating the likelihood of future tax settlements" (with Jared Jennings and Erin Towery)

Document Type

Peer-Reviewed Article

Publication Date

2024

Publisher

SSRN

Language

English

College

Marriott School of Business

Department

Accountancy

University Standing at Time of Publication

Full Professor

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