Does a firm’s life cycle explain its propensity to engage in corporate tax avoidance?

Abstract

This study examines the association between firm life cycle stages and corporate tax avoidance employing the Dickinson (2011) model of firms’ life cycle stages. Based on a large dataset of U.S. publicly listed firms over the 1987–2013 period, we find that compared to the shake-out stage of a firm’s life cycle, tax avoidance is significantly negatively associated with the growth and maturity stages, and significantly positively associated with the introduction and decline stages of a firm’s life cycle. In fact, we observe a U-shaped pattern in tax avoidance outcomes across the life cycle, consistent with the predictions of both dynamic resource-based dependence and agency theory. Finally, our results are robust to alternative measures of firm life cycle stages.