Tax Evasion and Information Production: Evidence from the FATCA and Offshore Asset Management

65 Pages Posted: 31 Aug 2020 Last revised: 12 May 2022

See all articles by Si Cheng

Si Cheng

Chinese University of Hong Kong - Department of Finance

Massimo Massa

INSEAD - Finance

Hong Zhang

Tsinghua University - PBC School of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: May 12, 2022

Abstract

We examine how tax evasion affects offshore asset managers’ incentives for information production. Using the Foreign Account Tax Compliance Act (FATCA) as an exogenous shock, we document that affected funds significantly enhance their performance as a response. This improvement comes from better information processing and is more substantial for tax-sensitive funds. Other fund policies related to fees and portfolio-based tax management are less affected. Our results reveal a novel substitution effect between tax evasion and information production, suggesting that curbing offshore tax evasion can help improve competitiveness and efficiency in the global asset management industry and related markets.

Keywords: tax evasion; FATCA; mutual funds; managerial incentives; market efficiency

JEL Classification: F36, G15, G23, H26

Suggested Citation

Cheng, Si and Massa, Massimo and Zhang, Hong, Tax Evasion and Information Production: Evidence from the FATCA and Offshore Asset Management (May 12, 2022). PBCSF-NIFR Research Paper, Available at SSRN: https://ssrn.com/abstract=3683674 or http://dx.doi.org/10.2139/ssrn.3683674

Si Cheng (Contact Author)

Chinese University of Hong Kong - Department of Finance ( email )

12/F, Cheng Yu Tung Building
No.12, Chak Cheung Street
Shatin, N.T.
Hong Kong

HOME PAGE: http://www.bschool.cuhk.edu.hk/staff/cheng-si/

Massimo Massa

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

Hong Zhang

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

HOME PAGE: http://www.hongzhang.info

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