Tax Function and Investment Decisions: Does Tax Integration Pay Off?

This study examines the link between tax integration in firms’ decision-making and three investment decision outcomes: profitability, number, and volume. Using novel survey data, I find that both early timing of tax integration in decision-making processes and organizational structures embedding the tax function in these decision-making processes are associated with higher profitability of real investments. To verify external validity, I link survey data on tax integration to profitability ratios from financial reports and find consistent results. Moreover, survey-based results suggest that organizational structures, in contrast to early tax integration, are positively associated with respondents’ reported number of real and intangible investments. However, tax integration is not associated with the investment volume. Overall, this study provides evidence—particularly for both corporate boards and stakeholders involved in making and analyzing business decisions—that tax integration can help firms make more favorable investment decisions.