Article
Taxes, Keiretsu Affiliation, and Income Shifting
Journal of Accounting and Economics
(2004)
Abstract
This paper provides evidence that keiretsu group member firms are subject to lower effective tax rates than independent firms in Japan. As an explanation, we develop a hypothesis that keiretsu firms strategically shift financially reported income among affiliates in order to reduce overall effective tax rates. Empirical evidence supports this income-shifting hypothesis since the positive relation between pre-tax return on firm value and marginal tax rate status is significantly mitigated by keiretsu membership. Contrasting conjecture, keiretsu income-shifting activities intensify when Japanese firms face economic recession. The evidence also suggests that benefactors of shifted income are compensated via increased dividends.
Disciplines
Publication Date
June, 2004
DOI
10.1016/j.jacceco.2003.10.001
Publisher Statement
Copyright © 2003 Elsevier B.V. All rights reserved.
*At the time of publication Piman Limpaphayom was affiliated with Chulalongkorn University
Citation Information
Gramlich, J., Piman Limpaphayom and S.G. Rhee (2004). “Taxes, Keiretsu Affiliation, and Income Shifting”. Journal of Accounting and Economics, 37: 203-228.