Paper 4 - Taxes and Financial Constraints : Evidence from Linguistic Cues

Question 1

What is the cause of conceptual level ?
(Libby box 1)

Answer 1

Firm’s financial constraints

Question 2

What is the effect on conceptual level ?
(Libby box)

Answer 2

Increase in tax aggressiveness

Question 3

What is the cause on operational level ?
(Libby box)

Answer 3

Change in use of negative words

Question 4

What is the effect on operational level ?
(Libby box)

Answer 4

Changes in UTBs, ETRs, IRS Audit adjustments or use/number of Tax Havens

Question 5

Explain the Libby box

Answer 5

Firms who have financial constraints want more money which increases tax aggressiveness.
Financial constraints is associated with negative words which leads to changes in use/number of tax havens.
The controls are year fixed effects, industry fixed effects and firm characteristics.

Question 6

Write a Hypothesis for the paper

Answer 6

Financially constraint firms are more tax aggressive

Question 7

Interpret the findings for the main variables in Table 1

Answer 7

It indicates Spearman’s correlation with the use of negative words. The avg use of negative words increases with the avg increase in UTB balance. The avg correlations between use of negative words is small (around 0.05)