Does corporate culture impact tax shelter? A machine learning approach

Abstract

This study investigates whether the corporate culture of a firm affects its tax shelter behavior. We use a novel machine learning methodology to measure the corporate culture of a firm. Our results show that firms with stronger corporate culture are more likely to have material operations in tax haven countries and the extent of such operations is greater in these firms. The findings also suggest that firms with stronger corporate cultures engage in greater tax avoidance. Our results are robust to the use of both instrumental variables and difference-in-difference identification strategies. Finally, we show that having tax haven operations as a result of stronger corporate culture increases a firm's after-tax earnings in future periods.