Tax Avoidance, Managerial Ability, and Investment Efficiency

29 Pages Posted: 26 Dec 2018

See all articles by Inder K. Khurana

Inder K. Khurana

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business

William J. Moser

Miami University

K. K. Raman

The University of Texas at San Antonio

Date Written: December 2018

Abstract

In this paper, we examine the impact of managerial ability on the relation between corporate tax avoidance and investment efficiency. Using a sample of US firms from 1994–2015, we find that as tax avoidance increases, firms with high (low) managerial ability exhibit increased (reduced) investment efficiency, that is, smaller (greater) deviations from predicted levels of investment spending. Supplemental analysis also shows that as tax avoidance increases, strong (weak) corporate governance increases (decreases) investment efficiency. Overall, our findings shed light on whether corporate tax avoidance generates wealth for the firm's shareholders or simply exacerbates agency problems.

Keywords: Corporate governance, Investment efficiency, Managerial ability, Residual investment, Tax avoidance

Suggested Citation

Khurana, Inder and Moser, William J. and Raman, K. K., Tax Avoidance, Managerial Ability, and Investment Efficiency (December 2018). Abacus, Vol. 54, Issue 4, pp. 547-575, 2018. Available at SSRN: https://ssrn.com/abstract=3306743 or http://dx.doi.org/10.1111/abac.12142

Inder Khurana (Contact Author)

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business ( email )

331 Cornell Hall
Columbia, MO 65211
United States
573-882-3474 (Phone)
573-882-2437 (Fax)

William J. Moser

Miami University ( email )

2027 Farmer School of Business
800 East High Street
Oxford, OH 45056
United States
513-529-8284 (Phone)

K. K. Raman

The University of Texas at San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States
210-458-8749 (Phone)

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