Analyst coverage and corporate tax aggressiveness

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: 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