Description:
We examine the association between strategic deviation-defined as the deviation of firms’ resource allocation from industry peers- and corporate tax avoidance. From an agency point of view, strategic deviation elevates information asymmetry, which gives rise to an opaque information environment and accentuates cash flow uncertainties. Therefore, we argue managers of firms with high strategic deviation act opportunistically to maximize their interests by avoiding tax compared with firms with low strategic deviation. Based on a large sample of 40,168 US firm-year observations for the period 1987-2020, we find evidence supporting our hypothesis. A series of robustness tests validates our main finding. We further provide evidence to suggest that the positive association between strategic deviation and tax avoidance is stronger for deviant firms with high financial constraints, low institutional ownership, firms operating in more competitive markets, and procuring higher auditor provided tax services from incumbent auditors