The Effect of Hedge Fund Activism on Corporate Tax Avoidance
C.S. Agnes Cheng
Hong Kong Polytechnic University - School of Accounting and Finance; Louisiana State University
Yeshiva University - Sy Syms School of Business
CUNY Baruch College
Purdue University - Krannert Graduate School of Management
April 20, 2012
The Accounting Review 87, 1493-1526
This paper examines the impact of hedge fund activism on corporate tax avoidance. We find that, relative to matched control firms, businesses targeted by hedge fund activists exhibit lower tax avoidance levels prior to hedge fund intervention, but experience increases in tax avoidance after the intervention. Moreover, findings suggest that the increase in tax avoidance is greater when activists have a successful track record of implementing tax changes and possess tax interest or knowledge as indicated by their SEC 13D filings. We also find that these greater tax savings do not appear to result from an increased use of high-risk and potentially illegal tax strategies, such as sheltering. Taken together, the results suggest that shareholder monitoring of firms, in the form of hedge fund activism, improves tax efficiency.
Number of Pages in PDF File: 50Accepted Paper Series
Date posted: August 5, 2011 ; Last revised: October 12, 2012
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