Does Information Asymmetry Affect Corporate Tax Aggressiveness?
69 Pages Posted: 6 Aug 2014 Last revised: 17 Jun 2018
Date Written: August 5, 2014
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
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