Institutional Ownership and Tax Aggressiveness
Inder K. Khurana
University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business
William J. Moser
August 31, 2009
AAA 2010 Financial Accounting and Reporting Section (FARS) Paper
In this paper we examine whether institutional ownership affects firm tax aggressiveness. We use five-year cash effective tax rate and yearly permanent book-tax differences to proxy for a firm’s level of tax aggressiveness. Using a sample of firms with institutional ownership data from 1995-2008, we find that firms with higher levels of total institutional ownership are generally more tax aggressiveness. When we evaluate the investment horizon of institutions by dividing total institutional ownership into short-term and long-term institutional ownership, we find that firms with relatively higher levels of short-term institutional ownership generally are more tax aggressive. In contrast, firms with relatively higher levels of long-term institutional ownership are generally less tax aggressive. Overall, our results suggest that short-term institutional shareholders influence firm management into becoming more tax aggressive in an effort to maximize firm value in the short-term. However, institutional shareholders with a longer investment horizon discourage firm tax aggressiveness.
Number of Pages in PDF File: 43
Keywords: Tax Aggressiveness, Institutional Ownership
Date posted: August 31, 2009
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