Does Index Addition Affect Corporate Tax Avoidance?

Posted: 14 Mar 2017

See all articles by Fariz Huseynov

Fariz Huseynov

North Dakota State University - College of Business

Sabuhi Sardarli

Kansas State University - Department of Finance

Wei Zhang

North Dakota State University

Date Written: March 12, 2017

Abstract

We examine corporate tax avoidance of firms around addition to the S&P 500 index. We find that corporate tax avoidance for firms at high levels of tax avoidance decreases after index addition, whereas tax avoidance for firms at low levels of tax avoidance increases after index addition. We disentangle the impact of changing governance practices from that of declining investment opportunities. Our findings indicate that the changes in tax avoidance can be attributed to improving governance practices, specifically higher institutional ownership and executive compensations, and this impact is above and beyond the changes in growth opportunities of index firms.

Keywords: Tax avoidance, Effective tax rate, Corporate governance, Index addition

JEL Classification: G14, G3, H26

Suggested Citation

Huseynov, Fariz and Sardarli, Sabuhi and Zhang, Wei, Does Index Addition Affect Corporate Tax Avoidance? (March 12, 2017). Journal of Corporate Finance, Vol. 43, 2017, Available at SSRN: https://ssrn.com/abstract=2931629

Fariz Huseynov

North Dakota State University - College of Business ( email )

Department of Acctg, Finance & Information Systems
Fargo, ND 58108
United States
+17012315074 (Phone)

Sabuhi Sardarli (Contact Author)

Kansas State University - Department of Finance ( email )

Manhattan, KS 66506
United States

Wei Zhang

North Dakota State University ( email )

Fargo, ND 58105
United States

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