The Influence of Country Level Corporate
Tax Rates on Corporate Risk-Taking
Remco Keizer
s1912909
MSc IFM
Faculty of Business and Economics
University of Groningen
Wim Westerman
Abstract
This thesis researches the effect of the country level corporate tax rate on the risk-taking behavior of companies. This thesis also researches the influence of investor protection and leverage on the country level corporate tax rate. Different results of the countries combined and the countries separately are found in the regressions. Based on this investigation it cannot be concluded that higher country level corporate tax rates, investor protection and leverage have a significant influence on the amount of risk-taking by companies overall.
1. Introduction
This study aims to examine the interaction between a country’s corporate tax rate and firm risk-taking, and the effect of leverage and shareholder protection on corporate risk-taking. In other words, this study seeks to answer the question of what happens to company risk-taking behavior with increasing and decreasing amounts of country level corporate tax rates, the level of investor protection of a country and the amount of leverage a firm.
Do country level corporate tax rates have a negative influence on firm risk-taking behavior?
In the remainder of this paper, a literature review is done and further sub-questions will be developed. The literature review gave indications of what results could be expected. Conducting the literature review, most literature indicated a negative relationship between the country level corporate tax rate and risk-taking behavior. As a proxy for risk-taking behavior, two variables were used. The first proxy is the investment ratio of the largest companies in three large economies. These countries are Germany, the United Kingdom and Japan, as these companies countries have different economic models and different investor protection ratings. This research found differing results of the effect of the country level corporate tax rate on risk-taking behavior of companies. Another instrument that policymakers could use to entice firms to take more risk is the level of investor protection. John et al. (2008) showed that higher investor protection has a positive effect on corporate risk-taking. However, some literature suggests otherwise. Burkart et al. (2003) found that there are factors concerning higher investor protection that negatively affects corporate risk-taking. Literature is divided, concerning the exact influence investor protection has on risk-taking behavior by companies and the results found in this research are in agreement with the literature being divided, as this research could also not find conclusive evidence supporting on or the other notion. Furthermore, the impact of Leverage on corporate risk-taking is researched. Literature was somewhat divided on the impact, yet the main consensus was that leverage would negatively influence corporate risk-taking. However, this paper could not find evidence supporting the literature that leverage positively influences corporate risk-taking.
research are presented and explained. The results of the models and data will be presented and discussed in the Results part and finally an overall conclusion is given along with limitations and recommendations.
2. Literature review
Country level corporate tax rate effects
rate is used to influence several areas in a countries policy, this paper aims to research the impact on risk-taking behavior by companies. As aforementioned, Ljungqvist et al. (2016) concluded in their research that increasing the country level corporate tax rate has a negative influence on the risk-taking behavior by companies, by shortening their operating cycles and by reducing the investments in their R&D department. Furthermore, Ljungqvist et al. (2016) suggest that increasing the country level corporate tax rate to increase government revenue might result in decreasing government revenue in the long run due to the fact that companies partake in less riskier projects and thus slows down economic growth and innovation. Finally, Ljungqvist et al. (2016) provide an simplified example to illustrate why increasing the country level corporate tax rate has a decrease in corporate risk-taking behavior as a consequence: safe project A has an expected profit of 40 dollar in scenario A and B, and risky project B has an expected profit of 100 dollar in scenario A and -20 dollar in scenario B, with the probability of scenario A and B occurring both are 50%. Than the expected profit in both projects, A ((40 dollar + 40 dollar) x 50% = 40 dollar) and B ((100 dollar – 20 dollar) x 50% = 40 dollar), is 40 dollar if the country level corporate tax rate is absent. Would there be a country level corporate tax rate of 30%, the expected profit for project A would be (((40 dollar + 40 dollar) x 50%) – 30% =) 28 dollar and for project B ((-20 dollar x 50%) + ((100 dollar x 50%)-30%) =) 25 dollar. This is due to the fact that the government shares in the profits but not in the losses and since scenario B of project B projects a loss, this loss will not be taxed. A firm would therefore prefer safe project A to risky project B.
Risk-taking
and investment. They found that a higher country level corporate tax rate has a negative impact on investment as it decreases the return on projects. When comparing all these different statements about risk and tax it can be said that, the literature leans toward the notion that lowering the country level corporate tax rate positively influences the risk-taking behavior of firms. The first hypothesis is therefore:
H1: Higher country level corporate tax rates negatively influences company risk-taking behavior.
Firm leverage
(Campbell and Viceira, 2005), firms whom take on less risky projects are likely to have worse results compared to companies who take on more risky projects. Consequently, according literature, it is probable that leverage is likely to have a negative impact on company risk-taking and can therefore influence the relation between tax levels and risk-taking. It is likely that firms with high leverage are probably avoiding high-risk projects and investment opportunities because of fear of bankruptcy and default. Therefore, firms with high leverage will participate in investment projects with lower risks.
However, Allen and Gale (2000) provide another view of the influence of leverage on risk-taking behavior. In their research on financial bubbles and the accompanying crises, they noticed a three-step phenomenon preceding the financial crisis. The first step is an increase in lending imposed by the government, resulting in increasing asset prices. This increase in lending and thus asset prices result in more risk-taking behavior by firms, with in mind that the firms have a safety net by being able to default on their bank loans. Allen and Gale therefore support a contradicting view of the effect of leverage on risk-taking behavior. Furthermore Angeloni et al. (2015) also found evidence supporting this theory. They researched statistical and anecdotal information and concluded that financial institutions in both Europe and North America operated in riskier projects due to excessive leverage. Akbar et al. (2015) also concluded that financial institutions have the tendency to invest in riskier projects due to the high leverage ratio. They conclude that executives of high leveraged financial firms are often motivated to adopt a riskier management style.
claiming otherwise is mainly oriented on the financial sector and because this paper is country-oriented and not industry-country-oriented, the hypothesis that will be used is as follows:
H2: Leverage will negatively influence the risk-taking behavior of companies
Investor protection
We next consider the independent variable investor protection, that could influence corporate and risk-taking behavior. When a firm is financed, whether through debt or through equity, the financers obtain several rights in or power over the firm (La Porta et al., 2000). Shareholders obtain the right to appoint directors, vote on important decisions concerning the firm or even take legal action against the directors of the firm. Debtholders are able to repossess assets or reorganize the firm when agreements between creditor and the firm are violated by the firm. Furthermore, both creditors and shareholders have the right to receive information necessary for the investors to make informed decisions concerning the firm. However, the level of investor protection differs per country and can therefore have differing impact on the risk-taking behavior of companies.
Second, non-equity stakeholders like banks, governments, and organized labor, may influence investment policy for their own benefits. These non-equity stakeholders often prefer conservative corporate investment and, in low investor protection countries, the influences of the non-equity stakeholders is often greater compared to countries with better investor protection. Thus, in the countries with lower investor protection the level of firm risk-taking would be lower. Mishra (2011) researched this further and come to the same conclusions as John et al. (2008), supporting the view that higher investor protection positively effects corporate risk-taking behavior. The research of (Volpin, 2001) came to same conclusion, also proving that higher investor protection leads to riskier corporate behavior and better performance.
In contrast, some literature suggests negative relation between investor protection and risk-taking. First, as investor protection improves, investors are less concerned about corporate managers depriving the company profits and therefore there is less need for concentrated ownership of dominant shareholders (Burkart et al., 2003). Consequently, it may cause an increase of managerial discretion, which will lead to more conservative risk-taking projects. In addition, when creditors are better protected, the bankruptcy costs are higher for shareholders. This causes the shareholders to support conservative projects in order to avoid bankruptcy (Acharya et al., 2008). Furthermore, poorer investor protection countries are likely to have more pyramid firms, because there are more dominant owners in firms (Morck et al., 2005, Stulz, 2005). The top layer of the company might instruct the lower levels of the company to take excess risks and channel profits to the top of the organization while leaving losses at the bottom of the pyramid. According to these arguments, the following hypotheses arise:
Or alternatively
H3b: Investor protection will negatively influence the risk-taking behavior of companies.
3. Data and Methodology
Data
The sample periods span from 2010 to 2016. This period is used because there is significant data available, it gives the most recent information and it is after the financial crisis and therefore does not give distorted outcomes.
Dependent variables
evidence that investment is a proxy for risk and, therefore, the investment ratio will be used as proxy for risk-taking behavior in this research.
The data comes from several sources. First, the DataStream database is used for measuring investment. I will look at three large economies who are also member of the OECD (Organisation for Economic Co-operation and Development). These countries are Germany, the United Kingdom and Japan. From these countries, the largest 200 companies of each country are used for the regression. The companies that are used are the 200 largest companies of each country, looking at revenue and market capitalization. These companies are all listed companies on each respective stock market index. These are the London Stock Exchange for the United Kingdom, the Frankfurt Stock Exchange for Germany and the Tokyo Stock Exchange for Japan. When the lists were compiled, the corresponding names in DataStream were connected and the necessary data for investment was found. Unfortunately, there was not significant data available for all companies and that is why the regressions are done with fewer companies. Companies where data was not available for more than one year are excluded. In addition, companies who had an investment of zero for multiple years are excluded from this research, as it is probable that this data is contorted and thus not a good fit for this research. If one data point is missing the average of the other data points for that company will be used. This resulted in 91, 104 and 99 companies per country respectively, the United Kingdom, Germany and Japan.
found that the return on assets is used in almost all of the failure prediction studies and finally, they found that the return on assets is used as a primary measure of profitability. However, in this research it will be used as a proxy for risk-taking behavior by companies. Higher volatility of earnings is an indicator of increased corporate risk-taking behavior (Li et al. 2013). Therefore, the change ((t) – (t-1)) in the return on assets will be used. The return on assets is calculated as a percentage and there are many different ways to calculate the return on assets. Every paper and textbook uses its own variant and has ample reasons supporting the chosen calculation (Jewel and Mankins, 2013). In this paper, the most common calculation will be used, namely: net income divided by total assets. This information will be gathered from the DataStream database.
Independent variables
The dependent variable risk-taking is measured by the independent variable country level corporate tax rate (TAX). The general database from KPMG will be used for the tax level. Furthermore, the relationship between investor protection (IP) and risk-taking behavior by companies will be researched. This variable will come from the investor protection index of the World Economic Forum. The third variable is leverage, measured by using the debt ratio (LEV). The debt ratio is calculated as long-term debt divided by total assets. When this ratio is higher, the proportion of long-term debt is greater compared with the total assets.
With the same lists as used for investment, the data for the leverage of all firms was found in DataStream. For this data, practically all information needed was available and therefore, no more firms had to be excluded.
starting from 2003 (KPMG, 2018). The country level corporate tax rate of the United Kingdom and Japan differed tremendously during the years that are researched. There is an eight percent difference between the first and the last year in the United Kingdom and for Japan there is even a difference of close to ten percent between the first and last year. For both countries, the country level corporate tax rate incrementally went down during the years. For Germany, the tax level differed less during the years. It stayed within a one percent range but it went up and down during the years.
When looking at investor protection, the data will come from the World Economic Forum Global Competitiveness Index. They make an annual assessment of multiple disciplines of 137 countries. The disciplines the World Bank assesses are the transparency of transactions, the ease with which shareholders are able to sue officers and directors for misconduct and the liability for self-dealing practices (World Bank, 2017). The scores for these different indexes are put together and finally created an investor protection index on a score range from one to ten (with ten having the best investor protection). There are significant differences between the countries when looking at the investor protection index. In the early years of this decade, the United Kingdom had the highest investor protection, scoring an eight out of ten where Germany only scores a five out of ten. Japan is in the middle of these two countries and scores a seven out of a maximum of ten points. In the following years, the investor protection of both the United Kingdom and Japan lessens a bit, that of Germany improves a bit, and thus investor protection of these countries converges (World Economic Forum, 2018).
Table 1: descriptive statistics
N Mean SD Median 25th percentile 75th percentile
INV 294 -0.0007 0.050 0.0002 -0.0097 0.0095 ROA 294 -0.1402 5.6834 0.0000 -1.18 1.14 TAX 294 29.55 5.9898 29.58 24 33.86 LEV 294 28.6864 24.5260 26.59 6.01 44.87 IP 294 6.6148 1.1195 7 5.9 7.8
The sample consists of 294 of the largest companies in Germany, Japan and the United Kingdom that are listed on the Frankfurt Stock Exchange, the Tokyo Stock Exchange and the London Stock Exchange respectively. The table lists the descriptive statistics for the dependent and independent variables. Risk1 is the difference (t) - (t-1) in investment ratio (investment / assets) per firm. Risk2 is the difference (t) - (t-1) of the return on assets (net income / assets) per firm. Tax is the country level corporate tax rate of each country. Lev is leverage (total liabilities / total assets) per firm. IP is investor protection per country categorized in a score from 1-10 (10 being the highest investor protection)
Methodology
The main goal is to research if country level corporate tax rates have a causal effect on corporate risk-taking behavior. The calculations will be done with standard OLS regression models. The models will be regressed using Eviews.
𝑅𝐼𝑆𝐾1𝑖𝑡 = 𝛽0+ 𝛽1𝑇𝐴𝑋𝑘𝑡+ 𝛽2𝐼𝑃𝑘𝑡+ +𝛽3𝐿𝐸𝑉𝑖𝑡 + 𝛽4𝐷𝑈𝑀𝑀𝑌𝐽𝑎𝑝𝑎𝑛+ 𝛽5𝐷𝑈𝑀𝑀𝑌𝐺𝑒𝑟𝑚𝑎𝑛𝑦+ 𝑒𝑖𝑡 𝑅𝐼𝑆𝐾2𝑖𝑡 = 𝛽0+ 𝛽1𝑇𝐴𝑋𝑘𝑡 + 𝛽2𝐼𝑃𝑘𝑡+ 𝛽3𝐿𝐸𝑉𝑖𝑡+ 𝛽4𝐷𝑈𝑀𝑀𝑌𝐽𝑎𝑝𝑎𝑛+ 𝛽5𝐷𝑈𝑀𝑀𝑌𝐺𝑒𝑟𝑚𝑎𝑛𝑦+ 𝑒𝑖𝑡
In this model i indexes firms, k indexes countries, t indexes years, RISK1 measures the risk-taking behavior of companies by the difference in investment ratio, RISK2 measures the corporate risk-taking behavior by using the difference in the return on assets, TAX is the country level corporate tax rate, IP is an indicator variable for investor protection, LEV is an indicator variable for the leverage of firms, DUMMYjapan and DUMMYgermany are country control variables and e is the estimate of the parameters. These are the equations that will be used for all sample firms and countries and the results will be presented in the Results section.
4. Results
Table 2: Estimated OLS regression model
Dependent Variables: Company risk-taking
Risk1 Risk2 (1) (2) (3) (1) (2) (3) Constant -0.8707 -1.4140 -0.8489 -1.5421 -1.3512 -1.5539 (-0.0255) (-0.0179) (-0.0247) (-5.0309) (-1.9145) (-5.0431) Tax 1.1238 1.4541 1.1212 0.4421 1.1099 0.4427 (0.0007) (0.0007) (0.0007) (0.0309) (0.0675) (0.0309) Lev 0.2645 0.2642 -0.0375 -0.0389 (0,0016) (0,0016) (-0.0002) (-0.0002) IP 0.2850 0.2848 1.0605 1.0608 (0.0011) (0.0011) (0.4958) (0.4958) Dummy1 -0.7567 -1.4333 -0.8129 0.5637 -0.3242 0.5783 (-0.0094) (-0.0120) (-0.0099) (0.7820) (-0.3036) (0.7907) Dummy2 -0.1297 -1.1260 -0.1390 0.7916 -0.5702 0.7936 (-0.0018) (-0.0056) (-0.0019) (1.2461) (-0.3162) (1.2482) Number of Observations 1764 1764 1764 1764 1764 1764 R² 0.0015 0.0014 0.0014 0.0035 0.0029 0.0035
Table 3: Estimated OLS regression model
Dependent Variables: Company risk-taking
Risk1 Risk2 (1) (2) (3) (1) (2) (3) Constant -1.4313 -2.2231** -1.4301 -1.6005 -0.3002 -1.6004 (-0.0638) (-0.0481) (-0.0637) (-6.8070) (-0.6213) (-6.8010) Tax 0.8022 2.1466** 0.8153 -1.1993 0.3916 -1.1933 (0.0009) (0.0012) (0.0009) (-0.1283) (0.0223) (-0.1275) Lev 0.3911 0.3915 0.2409 0.2409 (0.0007) (0.0007) (0.0042) (0.0042) IP 0.4025 0.4029 1.6641* 1.6655 (0.0043) (0.0043) (1.7197) (1.7197) Number of Observations 594 594 594 594 594 594 R² 0.0084 0.0081 0.0082 0.0050 0.0003 0.0049
Table 4: Estimated OLS regression model
Dependent Variables: Company risk-taking
Risk1 Risk2 (1) (2) (3) (1) (2) (3) Constant 0.1299 0.1120 0.1293 -0.9328 -1.2326 -0.9332 (0.12360 (0.0590) (0.1229) (-75.2533) (-55.0833) (-75.2313) Tax -0.1294 -0.1136 -0.1271 0.9062 1.2283 0.9060 (-0.0043) (-0.0020) (-0.0042) (2.5809) (1.8559) (2.5784) Lev 0.3558 0.3548 -0.1324 -0.1275 (0.0003) (0.0003) (-0.0011) (-0.0011) IP 0.0815 0.075748 -0.3003 -0.2984 (0.0007) (0.0007) (-0.2381) (-0.2363) Number of Observations 624 624 624 624 624 624 R² 0.0002 0.0002 0.0000 0.0026 0.0024 0.0025
Table 5: Estimated OLS regression model
Dependent Variables: Company risk-taking
Risk1 Risk2 (1) (2) (3) (1) (2) (3) Constant 0.2173 0.4147 0.2126 -1.2285 -1.1934 -1.2291 (0.0541) (0.0093) (0.0529) (-46.1280) (-4.0549) (-46.1010) Tax -0.1081 -0.3645 -0.0965 -0.1061 1.0985 -0.1080 (-0.0001) (-0.0003) (-0.0001) (-0.0234) (0.1619) (-0.0238) Lev -0.2412 -0.2416 0.0352 0.0366 (-0.0002) (-0.0002) (0.0004) (0.0004) IP -0.1806 -0.1810 1.1251 1.1262 (-0.0062) (-0.0062) (5.8252) (5.8254) Number of Observations 546 546 546 546 546 546 R² 0.0003 0.0003 0.0002 0.0045 0.0022 0.0045
First, in table 2, the results of the regressions of all countries combined are presented. It can be seen that Tax has a positive influence on both Risk1 and Risk2. Previous literature leaned toward the notion that country level corporate tax rates would negatively correlate with corporate risk-taking. Although some literature suggested a positive relationship between the country level corporate tax rate and corporate risk-taking. The first results suggest the notion of a positive relationship. Most literature also suggested a negative relationship between Leverage and risk-taking behavior by companies and some literature indicated a positive relationship. The results of the regressions for the effect of Leverage on corporate risk-taking are also divided. Both results for the effect of Leverage on Risk1 show a positive relationship and both results for the effect of Leverage on Risk2 show a negative relationship. Where literature is completely divided what the effect of Investor Protection on risk-taking behavior by companies is, the results for the
regressions presented in Table 2 are not divided. The effect of Investor Protection is positive for both Risk1 and Risk2. This is not in unison with the literature and it is therefore interesting that these results all suggest a positive relationship between Investor Protection and corporate risk-taking. However, none of the results presented in Table 2 are statistically significant.
To conclude for Table 2, the results for the effect of Tax and Investor Protection on Risk1 and Risk2 indicate a positive effect. This is contradictory to what was expected from previous literature who predicted a negative correlation between Tax and corporate risk-taking. Literature was divided on the effect of Investor Protection on corporate risk-taking, but the first results here depict a different picture with evidence supporting the view that Investor Protection has a
are more divided and cannot support that view. However, none of these results are significant and therefore not academically viable.
Table 3 presents the results of the regressions for Japan. In accordance with the results presented in Table 2, Tax shows a positive effect on Risk1. However, in accordance with what was
expected from literature, Tax indicates a negative effect on Risk2 for two out of three models. Only one of these results is statistically significant and that is for the effect of Tax on Risk1 in model 2. The results for Leverage indicate a positive effect on corporate risk-taking as all results are positive for both Risk1 and Risk2. This is not in coherence with literature where most
literature expected a negative relationship between Leverage and corporate risk-taking. However, the results are not significant and are therefore not clear evidence to overrule previous literature. The results of Investor Protection are in line with the results shown in Table 2. Investor
Protection has a positive influence on Risk1 and Risk2 and thus, against expectations from previous literature, give a more conclusive picture on the effect of Investor Protection on risk-taking behavior by companies. However, only the effect of Investor Protection on Risk2 in model 1 is significant, the results presented in the other models are not significant.
The results, presented in Table 4, are the regressions for Germany and give differing results compared to the previous tables. First, where Tax mainly had a positive effect on corporate risk-taking, Tax has a solely negative effect on Risk1. On the other hand, Tax has a positive effect on Risk2. This is differing from the previous results. Leverage shows a positive influence on Risk1 and a negative influence on Risk2. The effect of Leverage therefore remains elusive and do not give clear indications on what the effect is. The effect of Investor Protection on Risk1 is positive, in accordance with previous results. However, the influence of Investor Protection on Risk2 give negative results. This is agreeing more with literature who are divided about the exact influence of Investor Protection on corporate risk-taking. Yet, none of these results are significant and can therefore not be accepted as clear indication for clean results.
To conclude for Table 4, the results of the independent variables give different results for each dependent variable. This was expected from previous literature for the effect of Investor
Protection on corporate taking, but not for the effect of Leverage and Tax on corporate risk-taking.
are negative and the results for the effect of Investor Protection Risk2 are positive. This is in line with previous literature. However, none of the results presented are statistically significant.
Concluding for Table 5, the results for Tax are agreeing with previous literature, but not with the results presented in the Tables 2, 3 and 4. Leverage is in accordance with the previous tables, giving contrasting results where a positive relationship is indicated with Risk2 and a negative relationship with Risk1. Investor Protection is also divided, in line with existing literature.
Overall, the main conclusion that can be drawn is the outcomes presented in Tables 2, 3, 4 and 5 are in conflict with each other. The majority of literature predicted a negative relationship between the country level corporate tax rate and risk-taking behavior by companies and a negative relationship between leverage and corporate risk-taking. Some literature deviated from this picture and indicated that both the country level corporate tax rate and leverage would have a positive influence on corporate risk-taking. The results of the regressions made are deviating from each other and there is therefore no evidence to support one side of the literature. Furthermore, almost none of the results are significant and no academic conclusions can be drawn from this research. The existing literature is divided about what the effect of Investor Protection on risk-taking behavior by companies would be and the results of this research concur with that notion. Eight of twelve results show a positive relationship and the remaining four show a negative relationship between Investor Protection and corporate risk-taking. However, only one result is significant and therefore nog scientific contributions can be made.
5. Conclusion
The central research question of this research is if the country level corporate tax rate has a negative influence on the risk-taking behavior of companies. To conduct this research, two proxies were used to measure corporate risk-taking, namely the difference ((t) – (t-1)) in investment ratio (RISK1) and the difference ((t) – (t-1)) of the return on assets (RISK2). Thereafter, three countries were selected to conduct this research. The selection criteria were that these countries should be geographically dispersed, large enough to have a sufficient amount of large companies, member of the OECD and there should have been differences in the country level corporate tax rate in the selected period. The three countries chosen were Germany, Japan and the United Kingdom. Furthermore, two other variables were selected, Leverage and Investor Protection, to research what there effect is on the corporate risk-taking behavior.
rate could have different results on risk-taking behavior by companies, both positive and negative. The results are too different and insignificant and thus hypothesis 1 is rejected. The results of the second variable, Leverage, were equally varied compared to the results of Tax. Where literature suspected that Leverage would negatively influence corporate risk-taking, the results of this research suggested more nuanced results. Leverage indicated to have a positive influence on corporate risk-taking in some regressions and a negative influence in other regressions. It is therefore that hypothesis 2 is rejected. This is not a complete surprise as some papers also indicated a positive influence (Allen and Gale, 2000, Angeloni et al., 2015, Akbar et al., 2015), however most papers indicated that Leverage would have a negative influence on risk-taking behavior by companies (Firth et al., 2008, Habib and Hassan, 2017). The third variable, Investor Protection, also gave some interesting results. Where literature was divided about the influence of Investor Protection on corporate risk-taking, with some stating it had a positive influence (John et al., 2008, Mishra, 2011) and some papers stating it had a negative influence (Burkart et al., 2003, Acharya et al., 2008), the results in this research are agreeing in this discussion as the results of the regressions also showed conflicting results with various results indicating a positive influence and other results indicated a negative influence of Investor Protection on corporate risk-taking. Therefore, neither hypothesis 3a nor 3b can be accepted and both are thus rejected.
earned by the government. Although the results were not academically significant, this research invites to future research on this subject with different proxies for corporate risk-taking.
The managerial implications of this research are limited as the results were inconclusive. However, it is important for managers to follow future research on this matter as much is to be discovered which can have serious implications for managers. If future research does come with conclusive results, it can be important for managers in their decision where to locate their business or subsidiary. As countries have different country level corporate tax rate and the investor protection differs per country, this might have an enormous impact on the profitability of a company. This is also the case for decisions made how and how much companies should be leveraged, because different amounts of leverage per company in certain industries can have different consequences for companies and is thus an important factor to reckon with.
Limitations and Recommendations
per industry are. Finally, , it could be interesting to research what the impact of culture is on country level corporate tax rate and corporate risk-taking behavior.
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