Institutional Shareholders' Investment Horizons and Tax Avoidance
- 1 September 2012
- journal article
- Published by American Accounting Association in Journal of the American Taxation Association
- Vol. 35 (1), 111-134
- https://doi.org/10.2308/atax-50315
Abstract
We investigate whether the level of ownership by institutional shareholders with a long-term horizon is associated with firms' tax avoidance activities. In theory, tax avoidance increases firm value through tax savings; however, institutions with long-term investment horizons are likely to discourage tax avoidance activities if such activities encourage managerial opportunism and reduce transparency. Using a sample of firms with institutional ownership data from 1995–2008, we find less tax avoidance in firms held by long-term institutional shareholders. Probing further, we find these results are generally driven by poorly governed firms. Overall, our results highlight the role of certain types of institutional shareholders in affecting a firm's tax avoidance behavior.Keywords
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