Do U.S. Multinational Corporations Utilize Tax Avoidance Strategy to Meet and Beat Multiple Earnings Goals?

Experimental psychology literature (Wang and Johnson, 2012) suggests that under risky conditions, when multiple goals coexist, people tend to meet/beat all. Multinational corporations (MNCs) are different in tax structures between home countries and host countries. They tend to use tax planning strategies to boost their earnings through reduced tax liability (Lee et al., 2015). Prior literature documents that MNCs use different financial practices to manipulate earnings than non-MNCs (Contractor, 2016). Using a panel data set from 1987 to 2015, we hypothesize and find that U.S. MNCs tend to apply more aggressive tax planning to meet/beat multiple earnings benchmarks (MMB). Specifically, as U.S. MNCs MMB, they do not apply as much other earnings/expectations management mechanisms as non-U.S. MNCs, but they do exhibit significant evidence of tax avoidance with much lower effective tax rates. The findings of this study contribute to research topics in tax avoidance strategy and earnings management. The results and discussions of this study have practical implications to investors, managers, auditors, and tax regulators.