Does Information Asymmetry Affect Corporate Tax Aggressiveness?

Tao Chen; Chen Lin

doi:10.1017/S0022109017000576

Does Information Asymmetry Affect Corporate Tax Aggressiveness?

Tao Chen and Chen Lin

2017 · Published in Journal of Financial and Quantitative Analysis 52(5): 2053–2081 · DOI 10.1017/S0022109017000576

PDF of Does Information Asymmetry Affect Corporate Tax Aggressiveness? (Published version, DR-NTU repository)

In one sentence

Firms avoid taxes more aggressively after they lose analyst coverage, which raises information asymmetry.

Summary

The paper asks whether information asymmetry affects corporate tax avoidance. It uses reductions in analyst coverage caused by broker closures and mergers, with a difference-in-differences matching estimator. Firms avoid tax more aggressively after losing an analyst. The effect is driven by firms with greater existing tax-planning capacity (such as a tax-haven presence), smaller initial coverage and fewer peer firms. It is stronger in industries where reputation matters more and in firms that face less monitoring from tax authorities.

Abstract as published

We investigate the effect of information asymmetry on corporate tax avoidance. Using a difference-in-differences matching estimator to assess the effects of changes in analyst coverage caused by broker closures and mergers, we find that firms avoid tax more aggressively after a reduction in analyst coverage. We further find that this effect is mainly driven by firms with higher existing tax-planning capacity (e.g., tax-haven presence), smaller initial analyst coverage, and a smaller number of peer firms. Moreover, the effect is more pronounced in industries where reputation matters more and in firms subject to less monitoring from tax authorities.

Citation

Tao Chen, Chen Lin (2017). Does Information Asymmetry Affect Corporate Tax Aggressiveness?. Journal of Financial and Quantitative Analysis, 52(5), 2053–2081. https://doi.org/10.1017/S0022109017000576

BibTeX

@article{chen2017information,
  title = {{Does Information Asymmetry Affect Corporate Tax Aggressiveness?}},
  author = {Tao Chen and Chen Lin},
  journal = {Journal of Financial and Quantitative Analysis},
  year = {2017},
  volume = {52},
  number = {5},
  pages = {2053--2081},
  doi = {10.1017/S0022109017000576}
}