Shareholder Litigation and Corporate Tax Avoidance

Date
2017-08-31
Authors
Wang, Bin
Yang, Rong
Arena, Matteo
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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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Keywords
Shareholder Litigation, Tax Avoidance, Litigation risk
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