While tax avoidance strategies result in greater after-tax cash flows, they can involve uncertain future outcomes, which can impose significant costs on firms. Thus, the extent to which tax avoidance increases firm risk is unclear. This paper re-examines the relation between tax avoidance and...

Economic theory has long argued that when risk-averse investors are price-takers, a tax on risky returns (with full tax benefit for losses) will cause investments in risky assets to increase because the tax reduces after-tax risk. We extend this result to a setting with a fixed supply of risky...

We test whether tax avoidance strategies are associated with greater firm risk. We find that low tax rates tend to be more persistent than high tax rates and that measures of tax avoidance commonly used in the literature are generally not associated with either future tax rate volatility or...