Are corporates that manage to pay a low effective rate of tax taking greater risks? Some studies show this isn't the case – CFO Magazine discusses how company taxation might signal risk.

Discussing the study, Is Tax Avoidance Related to Firm Risk?, CFO Magazine's David McCann writes that there was no evidence suggesting that a low effective tax rate is linked to future stock-price volatility. However, he notes that the authors of the study have shown there is data to suggest that significant changes in the effective tax rate are correlated to stock-price volatility: “A potential explanation for that, they wrote, is that 'past volatility leads to greater uncertainty regarding the firm’s future tax rate and overall uncertainty regarding the firm’s future cash flows.'”

The study concludes that higher tax rates can only be effective with appropriate enforcement.

Read more in the full article here.

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CTMfile take: The US's 35 per cent corporate tax rate is the focus of much attention, with expectations that it will be lowered in 2017. This article discusses how many companies have managed to pay a lower rate and how this is perceived by investors.