How much tax should U.S. corporations pay? Even as a national legislative consensus seems to be growing that the current federal statutory rate of 35% is too high, a large swath of public opinion contends that companies too often find ways to pay less than their fair share.

Research has shown that major segments of the business and financial community, including banks, audit firms, labor unions, and professional investment advisers, commonly harbor suspicions about firms that manage to pay low rates.

Low taxes, the thinking goes, are a warning light for excessive risk-taking that could lead to future company troubles — such as from challenges by the IRS to aggressive tax positions, dubious investments in low-taxing but unstable corners of the world, and tax-related managerial misfeasance.

Are low taxes, then, a sign of risky corporate management, as widely believed? While in some cases they probably are, as a general matter it seems not to be the case, new research suggests.

A study in the current issue of The Accounting Review, published by the American Accounting Association, puts its conclusion succinctly: “Our results do not support the contention that tax avoidance activities that lower a firm’s tax rate are associated with a greater degree of risk.”

To reach that conclusion, the paper’s authors — David Guenther and Steven Matsunaga of the University of Oregon and Brian Williams of Indiana University — conducted three riskiness tests:

• Whether low effective tax rates (ETRs) prove merely temporary, being less persistent than higher rates
• Whether low ETRs are more predictive than higher rates of future tax volatility
• Whether low tax rates are associated with greater uncertainty about the firm’s overall future cash flow, as reflected in greater future stock-price volatility

In all three tests, low taxes proved not to be associated with corporate risk. “The current statutory rate may not be to companies’ liking, but we don’t find that it’s driving managers into risky behavior,” the authors wrote. “Our findings suggest a firm’s low taxes to be more reflective of skilled management than risky management.”

On whether low tax rates are persistent, the professors found that not only are companies with low ETRs no more likely than other firms to pay higher rates in succeeding years, they are significantly less likely to do so.

Thus, when companies were divided into five groups from lowest to highest ETRs, firms in the quintile that paid the lowest rates in a given five-year period had a 40% likelihood of remaining in that quintile in the succeeding five-year period. That was a significantly higher persistence than for any other quintile.

As for associations between ETRs and future tax volatility, two measures of ETRs showed there was a positive relationship (meaning that the higher companies’ tax rates were, the more volatile were their subsequent rates), while two other measures indicated no significant relationship.

Similarly, no evidence emerged linking low ETRs with future stock-price volatility. Some results suggested, in fact, that high rates predict that undesirable outcome. The insignificant relationships hold even for companies with operations in tax havens.

What does appear to be a harbinger of future financial troubles is not a low tax rate per se but ups and downs in ETRs, which the professors found to be predictive of future stock-price volatility. A potential explanation for that, they wrote, is that “past volatility leads to greater uncertainty regarding the firm’s future tax rate and overall uncertainty regarding the firm’s future cash flows.”

The study’s findings are based on analyses of the finances and taxes of a large sample of firms over a 25-year period — analyses that for some measures involve as much as 39,000 company-years of data. ETRs were calculated both for taxes that firms acknowledged on financial statements and tax payments actually made over three-year and five-year periods.

What accounts for findings that run counter to common assumptions in business and finance? One possible explanation: absence of enforcement.

“Aggressive tax positions will only result in high future payments if the IRS identifies the issue, chooses to challenge the position, and is successful in their challenge,” the study authors wrote. “In actual practice the positions are not reversed in the future, either because they are not identified and challenged or because the firm’s legal representation is able to reach a favorable outcome.”

In the end, though, the professors lean toward a more accepting view. “Overall,” they wrote in conclusion, “our findings are most consistent with the idea that low ETRs reflect the extent to which a firm’s operations allow the firm to take advantage of benign tax-favored transactions, as opposed to differences in managers’ willingness to reduce the firm’s tax payments through risky tax positions.”

The new study, entitled “Is Tax Avoidance Related to Firm Risk?” is in the January/February issue of The Accounting Review, published six times yearly by the American Accounting Association.