Does Information Asymmetry Affect Corporate Tax Aggressiveness?

69 Pages Posted: 6 Aug 2014 Last revised: 17 Jun 2018

See all articles by Tao Chen

Tao Chen

Nanyang Technological University (NTU) - Division of Banking & Finance

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Date Written: August 5, 2014

Abstract

We investigate the effect of information asymmetry on corporate tax avoidance. Using a difference-in-differences matching estimator to assess the effects of changes in analyst coverage caused by broker closures and mergers, we find that firms avoid tax more aggressively after a reduction in analyst coverage. We further find that this effect is mainly driven by firms with higher existing tax planning capacity (e.g., tax haven presence), smaller initial analyst coverage, and a smaller number of peer firms. Moreover, the effect is more pronounced in industries where reputation matters more, and in firms subject to less monitoring from tax authorities.

Keywords: Information asymmetry; Analyst coverage; Corporate tax aggressiveness; Natural experiment; Broker closures and mergers

JEL Classification: G24; G32; G30

Suggested Citation

Chen, Tao and Lin, Chen, Does Information Asymmetry Affect Corporate Tax Aggressiveness? (August 5, 2014). 27th Australasian Finance and Banking Conference 2014 Paper; Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2476224

Tao Chen

Nanyang Technological University (NTU) - Division of Banking & Finance ( email )

S3-B1A-08, Nanyang Avenue
Singapore, 639798
Singapore

Chen Lin (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

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