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ItemOrganizational Structure and Tax Avoidance: Multinational Evidence from Business Group Affiliation( 2017-08-31)We investigate whether business group affiliation affects tax avoidance in a global setting. While the business group structure could facilitate tax avoidance by allowing the ultimate owner to transfer resources and income across group firms, such activities likely incur nontax costs, such as minority shareholder protection, agency costs, and political costs. We find that, overall, business group firms exhibit greater tax avoidance than standalone firms, but the effect is restricted to firms in countries with developed economies where the nontax costs are lower. In contrast, we find that business group firms exhibit lower tax avoidance in emerging market countries, where the nontax costs are higher. This suggests that the nontax costs in emerging markets are sufficiently high to overcome the tax avoidance advantage provided by the business group structure. Our results therefore indicate that the business group structure enables group firms to reduce their tax liability, but that this ability is limited by the associated nontax costs.
ItemThe Effect of Foreign Institutional Ownership on Corporate Tax Avoidance: International Evidence( 2017-08-23)We find robust evidence that foreign institutional investors are negatively associated with their investee firms’ tax avoidance. To mitigate endogeneity concerns, we apply three identification strategies. First, we implement a two-stage least squares model. Second, we perform a difference-in-differences analysis by exploiting China’s legal reform, Qualified Foreign Institutional Investors program, as a quasi-natural experiment. Third, we compare changes in corporate tax avoidance in response to a significant increase in FIIs. We further find that the negative association is dominated by FIIs from countries with high tax morale and FIIs from countries with strong shareholder protection. Finally, we find that the extent of tax morale and shareholder protection in the country where an investee firm is located also matters. We conclude that FIIs play an active role in shaping investee firms’ corporate tax avoidance policy.