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The Effect of Hedge Fund Activism on Corporate Tax Avoidance

The Accounting Review 87, 1493-1526

50 Pages Posted: 5 Aug 2011 Last revised: 12 Oct 2012

C.S. Agnes Cheng

Hong Kong Polytechnic University - School of Accounting and Finance

Henry He Huang

Yeshiva University - Sy Syms School of Business

Yinghua Li

Arizona State University (ASU) - School of Accountancy

Jason Stanfield

Ball State University

Date Written: April 20, 2012

Abstract

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.

Suggested Citation

Cheng, C.S. Agnes and Huang, Henry He and Li, Yinghua and Stanfield, Jason, The Effect of Hedge Fund Activism on Corporate Tax Avoidance (April 20, 2012). The Accounting Review 87, 1493-1526. Available at SSRN: https://ssrn.com/abstract=1905544 or http://dx.doi.org/10.2139/ssrn.1905544

C.S. Agnes Cheng (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong

Henry Huang

Yeshiva University - Sy Syms School of Business ( email )

New York, NY 10033
United States
8322763834 (Phone)

Yinghua Li

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States
480-965-5188 (Phone)

HOME PAGE: http://my.wpcarey.asu.edu/directory/people/profile.cfm?person=2255159

Jason W. Stanfield

Ball State University ( email )

United States
7654913581 (Phone)

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