Deciphering Tax Avoidance: Evidence from Credit Rating Disagreements

Samuel B. Bonsall, Kevin Koharki, Luke Watson

Research output: Contribution to journalArticlepeer-review

21 Scopus citations


This study investigates the role of tax avoidance in the credit-rating process and whether differences exist in how rating agencies account for the risk relevance of tax avoidance. Using a sample of initial credit ratings assigned to public debt issuances during 1994–2013, our evidence is consistent with Moody's Investors Service and Standard & Poor's assessing the costs and benefits associated with tax avoidance differently from one another, resulting in more frequent and pronounced rating agency disagreement. Rating agency disagreement over tax avoidance is most evident when it is accompanied by relatively high levels of uncertain tax positions, foreign activities, research and development activities, or tax footnote opacity. We also find evidence that decreases (increases) in tax avoidance or tax footnote disclosure opacity are positively (negatively) associated with the convergence of split ratings. This suggests that firms can exacerbate or mitigate rating agency disagreement subsequent to bond issuance. Our study complements prior research by examining why sophisticated information intermediaries disagree about the risk relevance of tax avoidance. It also sheds light on how firms can influence rating agencies’ understanding of tax avoidance.

Original languageEnglish (US)
Pages (from-to)818-848
Number of pages31
JournalContemporary Accounting Research
Issue number2
StatePublished - Jun 1 2017

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics


Dive into the research topics of 'Deciphering Tax Avoidance: Evidence from Credit Rating Disagreements'. Together they form a unique fingerprint.

Cite this