Shareholder Investment Horizons and Tax Aggressiveness

46 Pages Posted: 4 Dec 2009

See all articles by Inder K. Khurana

Inder K. Khurana

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

William J. Moser

Miami University

Date Written: November 13, 2009


This paper examines whether the investment horizon of a firm’s institutional shareholders affects the extent of tax aggressiveness as proxied by a firm’s five-year cash effective tax rate and yearly permanent book-tax differences. Using a sample of firms with institutional ownership data from 1995-2008, we find more tax aggressiveness for firms held by short-term investors and less tax aggressiveness by firms held by long-term investors. These relations hold after the inclusion of various controls identified in prior research to affect our tax aggressiveness measures. To address the potential endogeneity problem of institutional ownership, we use instrumental variables to predict the institutional ownership variables, and find that the results are robust. Moreover, our results indicate that the effects of institutional ownership on permanent book-tax differences are generally more pronounced for firms with higher levels of cash.

Keywords: Tax Aggressiveness, Institutional Ownership, Corporate Governance

Suggested Citation

Khurana, Inder and Moser, William J., Shareholder Investment Horizons and Tax Aggressiveness (November 13, 2009). Available at SSRN: or

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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