Tax Avoidance and Internal Information Asymmetry

Journal of Forensic and Investigative Accounting, Forthcoming

38 Pages Posted: 6 Dec 2018

See all articles by Zawadi Lemayian

Zawadi Lemayian

Washington University in St. Louis

Yingnan (Chris) Yi

Washington University in St. Louis

Date Written: May 1, 2018

Abstract

We investigate the impact of a firm’s internal information asymmetry on its tax planning. Firms with more informed lower-level managers are described as having high internal information asymmetry, while those where top-level managers know more are characterized as having low internal information asymmetry. Using differences between top- and division-level managers’ trading profits of their own company’s stock as a proxy for internal information asymmetry, we show that tax avoidance is higher for firms with high information asymmetry. Further, we find the tax savings are greater for geographically dispersed firms, consistent with divisional managers playing a bigger role in key decisions of operationally complex firms. Overall, our study adds to the understanding of divisional managers’ roles. By showing that their information advantage impacts overall tax strategy, we contribute to a burgeoning stream of research which shows divisional managers matter for significant firm outcomes such as valuation and external financial reporting quality.

Keywords: tax avoidance, internal information asymmetry

JEL Classification: M41

Suggested Citation

Lemayian, Zawadi and Yi, Yingnan (Chris), Tax Avoidance and Internal Information Asymmetry (May 1, 2018). Journal of Forensic and Investigative Accounting, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3268914

Zawadi Lemayian (Contact Author)

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

Yingnan (Chris) Yi

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

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