Do Intangible Assets Foster Corporate Tax Avoidance?

Abstract

Although existing studies have documented ample evidence that intangible assets foster corporate tax avoidance, they fail to account for the productivity of intangible assets. Using intangible intensity that reflects both the scale and productivity, we show that intangible-intensive firms exhibit lower levels of corporate tax avoidance. The negative association mainly manifests in firms with low CEO pay-performance sensitivity, less corporate diversification, and a lack of foreign revenues. In addition, we examine the possible mechanism for the relationship and find that firm productivity plays a mediating role, which is supported by separating scale and productivity of intangible intensity. The firm productivity main stems from the goodwill acquired from M&A activities. Overall, our findings suggest that intangible asset productivity plays a critical role in corporate tax policies.