Abstract

http://ssrn.com/abstract=1338282
 
 

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The Separation of Ownership and Control and Corporate Tax Avoidance


Brad Badertscher


University of Notre Dame

Sharon P. Katz


Columbia Business School - Accounting, Business Law & Taxation

Sonja O. Rego


Indiana University - Kelley School of Business - Department of Accounting

August 22, 2013

Journal of Accounting and Economics, Forthcoming
Columbia Business School Research Paper No. 13-64

Abstract:     
We examine whether variation in the separation of ownership and control influences the tax practices of private firms with different ownership structures. Fama and Jensen (1983) assert that when equity ownership and corporate decision-making are concentrated in just a small number of decision-makers, these owner-managers will likely be more risk averse and thus less willing to invest in risky projects. Because tax avoidance is a risky activity that can impose significant costs on a firm, we predict that firms with greater concentrations of ownership and control, and thus more risk averse managers, avoid less income tax than firms with less concentrated ownership and control. Our results are consistent with these expectations. However, we also consider a competing explanation for these findings. In particular, we examine whether certain private firms enjoy lower marginal costs of tax planning, which facilitate greater income tax avoidance. Our results are consistent with the marginal costs of tax avoidance and the separation of ownership and control both influencing corporate tax practices.

Keywords: Private equity, ownership structure, tax avoidance, tax planning, book-tax differences, cash effective tax rates, marginal tax rates

JEL Classification: M41, G32, H25

Accepted Paper Series


Not Available For Download

Date posted: February 6, 2009 ; Last revised: May 14, 2014

Suggested Citation

Badertscher, Brad and Katz, Sharon P. and Rego, Sonja O., The Separation of Ownership and Control and Corporate Tax Avoidance (August 22, 2013). Journal of Accounting and Economics, Forthcoming; Columbia Business School Research Paper No. 13-64. Available at SSRN: http://ssrn.com/abstract=1338282 or http://dx.doi.org/10.2139/ssrn.1338282

Contact Information

Brad Badertscher
University of Notre Dame ( email )
Mendoza College of Business
Notre Dame, IN 46556-5646
United States
Sharon P. Katz
Columbia Business School - Accounting, Business Law & Taxation ( email )
3022 Broadway
New York, NY 10027
United States

Sonja O. Rego (Contact Author)
Indiana University - Kelley School of Business - Department of Accounting ( email )
1309 E. 10th Street
Bloomington, IN 47405
United States
812 855-6356 (Phone)
HOME PAGE: http://kelley.iu.edu/Accounting/faculty/page12887.cfm?ID=33017

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