Institutional Ownership and Corporate Tax Avoidance: New Evidence

By Mozaffar Khan, Suraj Srinivasan, Liang Tan. 2017

428 citations recorded by the source corpus.

ABSTRACT: We provide new evidence on the agency theory of corporate tax avoidance (Slemrod 2004; Crocker and Slemrod 2005; Chen and Chu 2005) by showing that increases in institutional ownership are associated with increases in tax avoidance. Using the Russell index reconstitution setting to isolate exogenous shocks to institutional ownership, and a regression discontinuity design that facilitates sharper identification of treatment effects, we find a significant and discontinuous increase in tax avoidance following Russell 2000 inclusion. The tax avoidance involves the use of tax shelters, and immediate benefits include higher profit margins and likelihood of meeting or beating analyst expectations. Collectively, the results shed light on the effect of increased ownership concentration on tax avoidance.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/63ee700c4f6503f4da9579c38b80c54511559421

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Citations in the corpus

Institutional Cross-Ownership and Corporate Strategy: The Case of Mergers and Acquisitions (2018, neutral): “Firm switches between the two Russell indexes have been extensively used as an exogenous shock on institutional ownership in the recent literature (e.g., Boone and White, 2015; Appel et al., 2016; Bird and Karolyi, 2016; Khan et al., 2016).”
How does quasi-indexer ownership affect corporate tax planning? (2019, positive): “3 In untabulated analyses, we employ two alternative measures of tax avoidance: the book-tax difference measure proposed by Manzon and Plesko (2002) and the book-tax difference measure developed by Desai and Dharmapala (2006).”