Institutional Ownership and Corporate Tax Avoidance: New Evidence

Posted: 27 May 2016

See all articles by Mozaffar Khan

Mozaffar Khan

Causeway Capital Management, LLC

Suraj Srinivasan

Harvard Business School

Liang Tan

George Washington University - Department of Accountancy

Multiple version iconThere are 2 versions of this paper

Date Written: May 25, 2016

Abstract

We provide new evidence on the agency theory of corporate tax avoidance (Slemrod 2004; Crocker and Slemrod 2005; Chen and Chu 2005) by showing that increases in institutional ownership are associated with increases in tax avoidance. Using the Russell index reconstitution setting to isolate exogenous shocks to institutional ownership, and a regression discontinuity design that facilitates sharper identification of treatment effects, we find a significant and discontinuous increase in tax avoidance following Russell 2000 inclusion. The tax avoidance involves the use of tax shelters, and immediate benefits include higher profit margins and likelihood of meeting or beating analyst expectations. Collectively the results shed light on the effect of increased ownership concentration on tax avoidance.

Keywords: Tax avoidance, Institutional ownership

JEL Classification: G30, H26, M40, M41

Suggested Citation

Khan, Mozaffar and Srinivasan, Suraj and Tan, Liang, Institutional Ownership and Corporate Tax Avoidance: New Evidence (May 25, 2016). Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2784438

Mozaffar Khan (Contact Author)

Causeway Capital Management, LLC

Suraj Srinivasan

Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States

HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=pub&facId=10700

Liang Tan

George Washington University - Department of Accountancy ( email )

School of Business and Public Management
Washington, DC 20052
United States

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