The Influence of Institutional Investment on Tax Aggressiveness

Abstract:     
This study investigates the association between tax reporting aggressiveness and types of institutional ownership. We find firms with higher levels of transient institutional owners are more likely to engage in aggressive tax planning leading to permanent and temporary differences. These results are robust to Granger causality tests and to a lesser degree changes specification. We find firms with more quasi-indexer ownership are less likely to engage in tax planning leading to permanent differences, but these results are sensitive to invariant time series characteristics of the tax measures. We find an association, albeit weak, between firms with dedicated institutional ownership and temporary differences. We also examine cash taxes paid over the past five years and find firms with higher levels of institutional investors are statistically more likely to own firms with lower cash effective tax rates. This holds regardless of heterogeneity in institutional ownership, however the economic significance is greatest for the transient group.

Number of Pages in PDF File: 47

working papers series