Corporate Governance and Tax Avoidance: Evidence from U.S. Cross-listing

Abstract

Using a sample of cross-listed firms from 50 countries and a difference-in-differences approach, we provide evidence that firms tend to engage in less tax avoidance after cross-listing. This effect is more pronounced for firms with lower quality and less independent external auditors and weaker internal auditing committees prior to cross-listing, and from countries with weaker shareholder protection and disclosure requirements. The results indicate that cross-listing in the U.S. aligns managers’ and shareholders’ interests and decreases managerial diversion. This finding is consistent with the view that both firm- and country-level corporate governance are important determinants of corporate tax-sheltering activities.

Keywords: cross-listing; tax avoidance; corporate governance; shareholder protection

JEL Classification: G21, G18, G32, G34, G35