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Contemporary Accounting Research 2026

Tax Payments in Loss Firms

Alexander Edwards1; Adrian Kubata2; Terry Shevlin3,4

1 Rotman School of Management University of Toronto Toronto Ontario Canada · 2 Department of Economics and Management University of Luxembourg Esch‐sur‐Alzette Luxembourg · 3 The Paul Merage School of Business University of California – Irvine Irvine California USA · 4 Foster School of Business University of Washington Seattle Washington USA

open access

Abstract

In a broad sample of publicly traded firms, we observe that the share of firms annually reporting pre‐tax book losses increased from about 20% to 40% during 1988–2023. We also observe that 68% of those loss firms have positive cash tax payments (taxpaying loss firms). The amount of taxes paid by these loss firms is substantial and increasing over time. Surprisingly, we observe that taxes paid increase with the magnitude of pre‐tax losses. This study seeks to understand the prevalence of taxpaying loss firms. We examine whether both the extensive margin—the likelihood that a loss firm pays taxes—and the intensive margin—the magnitude of taxes paid—are explained by firm characteristics. We find that multinational status, state taxes, consolidation differences, goodwill impairments, asset write‐downs, extraordinary items, discontinued operations, depreciation differences, the frequency and magnitude of losses, and firm size are key determinants of both the likelihood and the amount of taxes paid by loss firms. We find that the decrease in the statutory tax rate included in the Tax Cuts and Jobs Act of 2017 did not decrease the tax burden on loss firms.

DOI
10.1111/1911-3846.70064
Language
en
Sources
openalex crossref

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