Table 1 Key variable definitions...

Table 1

Key variable definitions

Variable	Variable definition
Panel A: tax avoidance measures
Cash ETR	Cash taxes paid (TXPD) divided by Pretax book income (PI) before Special Items (SPI) (defined by Dyreng et al. (2008))
GAAP ETR	Total tax expense (TXT) divided by pretax income (PI)
3-year Cash ETR	Three-year rolling sum of cash taxes paid (TXPD) over years t, t–1 and t–2 scaled by the sum of pretax income (PI) minus special items (SPI) over years t, t–1 and t–2
3-year GAAP ETR	Three-year rolling sum of total tax expense (TXT) over years t, t–1 and t–2 scaled by the sum of pretax income (PI) over years t, t–1 and t–2
Cash tax aggressiveness (TA)	Bank’s mean asset size by year Cash ETR less the Bank’s Cash ETR, where Cash ETR is the cash taxes paid (TXPD) scaled by the pretax income (PI) minus special items (SPI), following Balakrishnan et al. (2019)
GAAP TA	Bank’s mean asset size by year GAAP ETR less the firm’s GAAP ETR, where GAAP ETR is the total tax expense (TXT) scaled by the pretax income (PI), following Balakrishnan et al. (2019)
Net charge-offs	Debt that bank is not likely to recover scaled by Total Assets
3-year Cash TA	Bank’s mean asset size by year Cash ETR less the Bank’s Cash ETR, where Cash ETR is the three-year rolling sum of cash taxes paid (TXPD) over years t, t–1 and t–2 scaled by the sum of pretax income (PI) minus special items (SPI) over years t, t–1 and t–2, following Balakrishnan et al. (2019)
3-year GAAP TA	Bank’s mean asset size by year GAAP ETR less the firm’s GAAP ETR, where GAAP ETR is the three-year rolling sum of total tax expense (TXT) over years t, t–1 and t–2 scaled by the sum of pretax income (PI) over years t, t–1 and t–2, following Balakrishnan et al. (2019)
Tax aggressiveness index	A composite measure that is the sum of the Cash TA and the GAAP TA
3-yr tax aggressiveness index	A composite measure that is the sum of the 3-year Cash TA and the 3-year GAAP TA
Effective tax planning score₁	A measure for how efficiently firms maximize their after-tax returns by employing data envelopment analysis (DEA), developed by Schwab et al. (2022) and theoretically aligned with the Scholes-Wolfson paradigm (Scholes et al., 1992). The raw scores increase from zero to one in tax effectiveness
Effective tax planning score₂	A measure for how efficiently profitable firms maximize their after-tax returns by employing data envelopment analysis (DEA), developed by Schwab et al. (2022) and theoretically aligned with the Scholes–Wolfson paradigm (Scholes et al., 1992). The raw scores increase from zero to one in tax effectiveness
IRS attention	Tracks the attention that a firm receives from the Internal Revenue Service, calculated by the number of times in a year that a 10-K or a 10-Q document is downloaded from the EDGAR database, by an IP address matching that of the IRS’ IP addresses (Bozanic et al., 2017)
Post-DFA intensity in tax avoidance	Terciles based on the highest increase in tax avoidance (measured using Cash ETR) after the implementation of Dodd–Frank compared to pre-Dodd–Frank period
Panel B: bank characteristics
Risk density	Risk-weight Assets scaled by Total Assets
Capital ratio	Total Capital/Risk Weighted Assets
Tier 1 ratio	Tier 1 Capital/Risk Weighted Assets
Leverage ratio	Tier 1 Capital/Total Assets
Total equity/assets	Shareholder Equity to Asset Ratio
Total deposits/assets	Total Deposits scaled by Total Assets
Available loan loss reserves/total loans	Reserves available to cover loan losses scaled by Total Loans
Problem loans %	Percentage of loans that are problem loans
Loans/assets	Total Loans scaled by Total Assets
CRE loans/assets	Commercial Real Estate Loans scaled by Total Assets
RRE loans/assets	Residential Real Estate Loans scaled by Total Assets
Consolidated agricultural loans/assets	Consolidated Agricultural loans scaled by Total Assets
C&I loans/assets	Commercial and Industrial Loans scaled by Total Loans
Consumer loans/assets	Consumer Loans scaled by Total Assets
Consolidated loans to foreign govts/total loans	Consolidated Loans to foreign governments scaled by Total Loans
Off balance sheet assets/assets	Off Balance Sheet Assets scaled by Total Assets
Loans HFS/assets	Held-For-Sale Loans scaled by Total Assets
AFS securities/assets	Available-For-Sale Securities scaled by Total Assets
HTM securities/assets	Held-To-Maturity Securities scaled by Total Assets
Cash and deposits due/assets	Cash and Deposits Due scaled by Total Assets
Federal funds/assets	Federal Funds scaled by Total Assets
Other assets/assets	Other Assets scaled by Total Assets
Return on equity	Profitability measure, calculated as net income by Shareholder Equity
Return on assets	Profitability measure, calculated as net income by total assets
Net interest margin	Long-term Profitability measure, measured as the difference between interest received and interest paid
Net non-interest margin	measured as the difference between non-interest earnings received and non-interest paid. Non-interest earnings include subscription fees, penalty fees, transaction fees and inactivity fees
Net income	Revenue net of expenses, interest and taxes
Profitability	EBITDA/Total Assets
Gross profitability	(Revenue – Cost of Goods Sold)/Total Assets
Dividend payout ratio	Dividends paid by the bank divided by net income
Panel C: uncertainty and political risk sentiments
Regulatory uncertainty	Hassan et al. (2019) use a pattern-based sequence-classification method on earnings call transcripts to determine the risk surrounding political-related discourse in earnings conference call transcripts
Regulatory uncertainty sentiment	Hassan et al. (2019) use the positive and negative sentiments from the Loughran and McDonald (2011) Sentiment Word List to extract sentiments related to political risk in earnings calls
Tax-related regulatory uncertainty	Political risk focused on tax policies, extracted using computational linguistic tools on bank earnings call by Hassan et al. (2019)
Portfolio uncertainty	The bank uncertainty sentiment related to the communicated “Portfolio” risk culture driver, obtained from Owusu and Gupta (2023)
Earnings volatility	Our first set of measures for bank uncertainty is the measured as the expectation of future earnings volatility. It is calculated as the standard deviation of the earnings over the periods t+1, t+2 and t+3. The diluted earnings before extraordinary items and the basic earnings per share without extraordinary items are the two measures of earnings that we use Allayannis and Weston (2003)
Cash flow volatility	Our second set of measures for bank uncertainty is the measured as the expectation of future cash flow volatility. It is calculated as the standard deviation of the cash flow over the periods t+1, t+2 and t+3. The cash flow scaled by the number of shares and the cash flow scaled by assets are the two measures of cash flow that we use Allayannis and Weston (2003)

Variable	Variable definition
Panel A: tax avoidance measures
Cash ETR	Cash taxes paid (TXPD) divided by Pretax book income (PI) before Special Items (SPI) (defined by Dyreng et al. (2008))
GAAP ETR	Total tax expense (TXT) divided by pretax income (PI)
3-year Cash ETR	Three-year rolling sum of cash taxes paid (TXPD) over years t, t–1 and t–2 scaled by the sum of pretax income (PI) minus special items (SPI) over years t, t–1 and t–2
3-year GAAP ETR	Three-year rolling sum of total tax expense (TXT) over years t, t–1 and t–2 scaled by the sum of pretax income (PI) over years t, t–1 and t–2
Cash tax aggressiveness (TA)	Bank’s mean asset size by year Cash ETR less the Bank’s Cash ETR, where Cash ETR is the cash taxes paid (TXPD) scaled by the pretax income (PI) minus special items (SPI), following Balakrishnan et al. (2019)
GAAP TA	Bank’s mean asset size by year GAAP ETR less the firm’s GAAP ETR, where GAAP ETR is the total tax expense (TXT) scaled by the pretax income (PI), following Balakrishnan et al. (2019)
Net charge-offs	Debt that bank is not likely to recover scaled by Total Assets
3-year Cash TA	Bank’s mean asset size by year Cash ETR less the Bank’s Cash ETR, where Cash ETR is the three-year rolling sum of cash taxes paid (TXPD) over years t, t–1 and t–2 scaled by the sum of pretax income (PI) minus special items (SPI) over years t, t–1 and t–2, following Balakrishnan et al. (2019)
3-year GAAP TA	Bank’s mean asset size by year GAAP ETR less the firm’s GAAP ETR, where GAAP ETR is the three-year rolling sum of total tax expense (TXT) over years t, t–1 and t–2 scaled by the sum of pretax income (PI) over years t, t–1 and t–2, following Balakrishnan et al. (2019)
Tax aggressiveness index	A composite measure that is the sum of the Cash TA and the GAAP TA
3-yr tax aggressiveness index	A composite measure that is the sum of the 3-year Cash TA and the 3-year GAAP TA
Effective tax planning score₁	A measure for how efficiently firms maximize their after-tax returns by employing data envelopment analysis (DEA), developed by Schwab et al. (2022) and theoretically aligned with the Scholes-Wolfson paradigm (Scholes et al., 1992). The raw scores increase from zero to one in tax effectiveness
Effective tax planning score₂	A measure for how efficiently profitable firms maximize their after-tax returns by employing data envelopment analysis (DEA), developed by Schwab et al. (2022) and theoretically aligned with the Scholes–Wolfson paradigm (Scholes et al., 1992). The raw scores increase from zero to one in tax effectiveness
IRS attention	Tracks the attention that a firm receives from the Internal Revenue Service, calculated by the number of times in a year that a 10-K or a 10-Q document is downloaded from the EDGAR database, by an IP address matching that of the IRS’ IP addresses (Bozanic et al., 2017)
Post-DFA intensity in tax avoidance	Terciles based on the highest increase in tax avoidance (measured using Cash ETR) after the implementation of Dodd–Frank compared to pre-Dodd–Frank period
Panel B: bank characteristics
Risk density	Risk-weight Assets scaled by Total Assets
Capital ratio	Total Capital/Risk Weighted Assets
Tier 1 ratio	Tier 1 Capital/Risk Weighted Assets
Leverage ratio	Tier 1 Capital/Total Assets
Total equity/assets	Shareholder Equity to Asset Ratio
Total deposits/assets	Total Deposits scaled by Total Assets
Available loan loss reserves/total loans	Reserves available to cover loan losses scaled by Total Loans
Problem loans %	Percentage of loans that are problem loans
Loans/assets	Total Loans scaled by Total Assets
CRE loans/assets	Commercial Real Estate Loans scaled by Total Assets
RRE loans/assets	Residential Real Estate Loans scaled by Total Assets
Consolidated agricultural loans/assets	Consolidated Agricultural loans scaled by Total Assets
C&I loans/assets	Commercial and Industrial Loans scaled by Total Loans
Consumer loans/assets	Consumer Loans scaled by Total Assets
Consolidated loans to foreign govts/total loans	Consolidated Loans to foreign governments scaled by Total Loans
Off balance sheet assets/assets	Off Balance Sheet Assets scaled by Total Assets
Loans HFS/assets	Held-For-Sale Loans scaled by Total Assets
AFS securities/assets	Available-For-Sale Securities scaled by Total Assets
HTM securities/assets	Held-To-Maturity Securities scaled by Total Assets
Cash and deposits due/assets	Cash and Deposits Due scaled by Total Assets
Federal funds/assets	Federal Funds scaled by Total Assets
Other assets/assets	Other Assets scaled by Total Assets
Return on equity	Profitability measure, calculated as net income by Shareholder Equity
Return on assets	Profitability measure, calculated as net income by total assets
Net interest margin	Long-term Profitability measure, measured as the difference between interest received and interest paid
Net non-interest margin	measured as the difference between non-interest earnings received and non-interest paid. Non-interest earnings include subscription fees, penalty fees, transaction fees and inactivity fees
Net income	Revenue net of expenses, interest and taxes
Profitability	EBITDA/Total Assets
Gross profitability	(Revenue – Cost of Goods Sold)/Total Assets
Dividend payout ratio	Dividends paid by the bank divided by net income
Panel C: uncertainty and political risk sentiments
Regulatory uncertainty	Hassan et al. (2019) use a pattern-based sequence-classification method on earnings call transcripts to determine the risk surrounding political-related discourse in earnings conference call transcripts
Regulatory uncertainty sentiment	Hassan et al. (2019) use the positive and negative sentiments from the Loughran and McDonald (2011) Sentiment Word List to extract sentiments related to political risk in earnings calls
Tax-related regulatory uncertainty	Political risk focused on tax policies, extracted using computational linguistic tools on bank earnings call by Hassan et al. (2019)
Portfolio uncertainty	The bank uncertainty sentiment related to the communicated “Portfolio” risk culture driver, obtained from Owusu and Gupta (2023)
Earnings volatility	Our first set of measures for bank uncertainty is the measured as the expectation of future earnings volatility. It is calculated as the standard deviation of the earnings over the periods t+1, t+2 and t+3. The diluted earnings before extraordinary items and the basic earnings per share without extraordinary items are the two measures of earnings that we use Allayannis and Weston (2003)
Cash flow volatility	Our second set of measures for bank uncertainty is the measured as the expectation of future cash flow volatility. It is calculated as the standard deviation of the cash flow over the periods t+1, t+2 and t+3. The cash flow scaled by the number of shares and the cash flow scaled by assets are the two measures of cash flow that we use Allayannis and Weston (2003)

Note(s): This table reports definitions for our key independent and dependent variables. Panel A comprises the definitions for our tax avoidance measures, which include the Cash ETR, the GAAP ETR, the Cash and GAAP Tax Aggressiveness, the three-year rolling averages of these four measures, the TAI, the effective tax planning scores (Schwab et al., 2022), the IRS attention (Bozanic et al., 2017) and the post-DFA increase in tax avoidance. Panel B contains our bank's characteristic variables, such as risk ratios, profitability measures, balance sheet items, loans and other financial ratios. Finally, Panel C constitutes the definitions for our tax uncertainty measures, including the firm-level political risk measures obtained from Hassan et al. (2019), which we use as proxies for regulatory uncertainty, and portfolio uncertainty (Owusu & Gupta, 2023)

Source(s): Authors’ own work

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