The Influence of a Firm's Business Strategy on its Tax Aggressiveness

Using the Miles and Snow's (1978, 2003) theoretical business strategy framework, we examine the relation between a firm's business and tax-planning strategies. We first investigate whether a firm's business strategy is associated with its level of tax avoidance (i.e., how much tax is avoided). Next, we investigate the association between a firm's business strategy and the extent to which the nature of its tax planning could be considered aggressive (i.e., the level of outcome uncertainty associated with the reduction in tax). This research is important because it helps provide a better understanding of the factors that affect a firm's propensity to engage in aggressive tax-avoidance behavior (Hanlon and Heitzman 2010). The distinguishing feature of our study is that it is grounded in a theoretical framework that is used to make clear predictions regarding the link between a firm's business strategy and its tax aggressiveness.