Download This PaperShort-Selling Pressure and Corporate Tax Aggressiveness
51 Pages Posted: 7 Apr 2020 Last revised: 29 Oct 2020
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Short-Selling Pressure and Corporate Tax Aggressiveness
Short-Selling Pressure and Corporate Tax Aggressiveness
Date Written: October 6, 2020
Abstract
We study how short-selling pressure affects tax aggressiveness using the pilot program on short sales in Regulation SHO. Using a difference-in-differences approach, we find that higher short-selling pressure significantly reduces tax aggressiveness. To explain the reduction, we offer a simple agency-theoretic model and provide evidence that when short-selling pressure increases, the likelihood of detecting questionable tax shelters increases, discouraging tax aggressiveness. Corroborating this evidence, we also find stronger (weaker) effects of short-selling pressure on firms subject to fewer (more) audits by the IRS before the pilot program. These findings suggest that short-sellers help reduce aggressive tax avoidance schemes.
Keywords: Aggressive Tax Avoidance, Short-Selling Pressure, Detection, Monitoring
JEL Classification: G18; G34; H26
Suggested Citation: Suggested Citation
E. Han Kim
University of Michigan, Stephen M. Ross School of Business ( email )
701 Tappan Street
Ann Arbor, MI MI 48109
United States
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