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Institutional Ownership and Tax Aggressiveness

43 Pages Posted: 31 Aug 2009  

Inder K. Khurana

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business

William J. Moser

Miami University

Date Written: August 31, 2009

Abstract

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.

Keywords: Tax Aggressiveness, Institutional Ownership

Suggested Citation

Khurana, Inder K. and Moser, William J., Institutional Ownership and Tax Aggressiveness (August 31, 2009). AAA 2010 Financial Accounting and Reporting Section (FARS) Paper. Available at SSRN: https://ssrn.com/abstract=1464106 or http://dx.doi.org/10.2139/ssrn.1464106

Inder Khurana

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business ( email )

331 Cornell Hall
Columbia, MO 65211
United States
573-882-3474 (Phone)
573-882-2437 (Fax)

William J. Moser (Contact Author)

Miami University ( email )

2027 Farmer School of Business
800 East High Street
Oxford, OH 45056
United States
513-529-8284 (Phone)

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