Corporate Tax Planning and Political Costs: Peer Effects of Foreign Institutional Ownership

64 Pages Posted: 17 Jun 2019

See all articles by April Klein

April Klein

New York University (NYU) - Department of Accounting

Simone Traini

Norwegian School of Economics

Georgios Voulgaris

University of Warwick - Warwick Business School

Date Written: June 1, 2019

Abstract

We explore the relation between foreign institutional ownership and corporate tax planning. Using a comprehensive sample of international publicly listed firms, we find the presence of foreign institutional investors plays a disciplinary role by leading corporate managers to engage in a level of tax planning consistent with the average tax position of the company’s country and industry peers. Our findings hold for larger firms only, consistent with a political cost theory of tax planning. We address endogeneity concerns by exploiting multiple sources of exogenous variation in foreign institutional ownership. Our results overall suggest that foreign institutions act as effective monitors of managerial tax-related activity.

Keywords: Tax planning, Foreign institutional ownership, Corporate governance

JEL Classification: H26, G32, G34

Suggested Citation

Klein, April and Traini, Simone and Voulgaris, Georgios, Corporate Tax Planning and Political Costs: Peer Effects of Foreign Institutional Ownership (June 1, 2019). Available at SSRN: https://ssrn.com/abstract=3400881 or http://dx.doi.org/10.2139/ssrn.3400881

April Klein (Contact Author)

New York University (NYU) - Department of Accounting ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012
United States

Simone Traini

Norwegian School of Economics ( email )

Helleveien 30
Bergen, NO-5045
Norway

Georgios Voulgaris

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

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