Corporate Tax Planning and Political Costs: Peer Effects of Foreign Institutional Ownership
64 Pages Posted: 17 Jun 2019
Date Written: June 1, 2019
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: Suggested Citation