Institutional Ownership and Tax Aggressiveness
Inder K. Khurana
University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business
William J. Moser
University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business; University of Missouri - School of Accountancy
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 Ownershipworking papers series
Date posted: August 31, 2009
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