Analyst coverage and corporate tax aggressiveness

54 Pages Posted: 29 Mar 2014 Last revised: 21 Sep 2016

See all articles by Arthur C. Allen

Arthur C. Allen

Univ. of Nebraska - Lincoln

Bill B. Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management

Qiang Wu

Rensselaer Polytechnic Institute (RPI) - Lally School of Management

Yijiang Zhao

American University - Kogod School of Business

Date Written: May 1, 2015

Abstract

We examine the impact of analyst coverage on corporate tax aggressiveness. To address endogeneity concerns, we perform a difference-in-differences analysis using a setting which causes exogenous decreases in analyst coverage. Our tests identify a negative causal effect of analyst coverage on tax aggressiveness, suggesting that higher analyst coverage constrains corporate tax aggressiveness. Further cross-sectional variation tests find that this constraining effect on tax aggressiveness is more pronounced in firms with lower investor recognition and firms with more opaque information environments. Our results are consistent with the notion that higher analyst coverage increases the visibility of aggressive tax planning behavior as well as heightens analysts’ demand for more transparent information, which in turn reduces tax aggressiveness.

Keywords: Corporate tax aggressiveness; analyst coverage; investor recognition; information asymmetry; market pressure; natural experiment

JEL Classification: H20, G34, M41

Suggested Citation

Allen, Arthur C. and Francis, Bill B. and Wu, Qiang and Zhao, Yijiang, Analyst coverage and corporate tax aggressiveness (May 1, 2015). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2417147 or http://dx.doi.org/10.2139/ssrn.2417147

Arthur C. Allen

Univ. of Nebraska - Lincoln ( email )

730 N. 14th St.
445J College of Business
Lincoln, NE 68588-0488
United States

Bill B. Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management ( email )

Troy, NY 12180
United States

Qiang Wu

Rensselaer Polytechnic Institute (RPI) - Lally School of Management ( email )

110 8th St
Troy, NY 12180
United States
518-276-3338 (Phone)
518-276-8661 (Fax)

Yijiang Zhao (Contact Author)

American University - Kogod School of Business ( email )

4400 Massachusetts Ave, NW
Washington, DC 20016
United States
202-885-1941 (Phone)

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