PREDICTING FINANCIAL DEFAULT WITH AI BY INTEGRATING TAX PLANNING INSIGHTS ACROSS FIRM LIFE CYCLE PHASES

International Journal of Computer Science (IJCS) Published by SK Research Group of Companies (SKRGC)

Abstract

Tax planning has a big impact on financial stability of firms, with efficacy of this planning differing as a firm is subjected to various stages of corporate life cycle. Emphasis in previous studies was for the most part on considering tax planning as an all-purpose strategy, neglecting how a firm's risk of default might change with its level of development. In this study, an attempt is made to fill that gap by focusing on stage-specific effects of tax planning on risk of financial default. Through hazard model regression and random forest assisted predictive analysis using data from the Compustat database, tax planning has been gauged by GAAP ETR as well as its volatility. Tax planning reduces default risk by 3.51% in the Introduction stage and by 6.65% in the Decline because of enhanced liquidity, while default risk rises by 1.92% and 2.36% during Growth and Maturity stages due to inefficient allocation and poor financial discipline in this research. This research provides a dynamic life cycle perspective for aligning tax strategies with firm conditions, thus providing actionable decision-making insights for financial policymakers.

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Keywords

Tax Planning, Financial Default Risk, GAAP Effective Tax Rate (ETR), Corporate Life Cycle, Life Cycle–Based Tax Strategy, Firm Financial Stability.