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Shareholder Litigation and Corporate Tax Avoidance

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Title:Shareholder Litigation and Corporate Tax Avoidance
Authors:Wang, Bin
Yang, Rong
Arena, Matteo
Keywords:Shareholder Litigation
Tax Avoidance
Litigation risk
Date Issued:31 Aug 2017
Abstract:We examine whether the threat of shareholder litigation is systematically related to corporate tax avoidance activities. Using the Ninth Circuit Court of Appeals as a natural experiment, we find a strong negative effect of the threat of shareholder litigation on corporate tax avoidance, as captured by effective tax rates and book-tax differences. We find that the negative effect is mitigated by strong union power and geographic diversifications, whereas is intensified by high industry litigation risk. Collectively, this study sheds light on the “undersheltering puzzle” of corporate aggressive tax behavior.
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Appears in Collections: 08 Taxation (Tax)

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