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  • March 2017
  • Article
  • Accounting Review

Institutional Ownership and Corporate Tax Avoidance: New Evidence

By: Mozaffar N. Khan, Suraj Srinivasan and Liang Tan
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Abstract

We provide new evidence on the agency theory of corporate tax avoidance (Slemrod, 2004; Crocker and Slemrod, 2005; Chen and Chu, 2005) by showing that increases in institutional ownership are associated with increases in tax avoidance. Using the Russell index reconstitution setting to isolate exogenous shocks to institutional ownership, as well as a regression discontinuity design that facilitates sharper identification of treatment effects, we find a significant and discontinuous increase in tax avoidance following Russell 2000 inclusion. The tax avoidance involves the use of tax shelters, and immediate benefits include higher profit margins and the likelihood of meeting or beating analyst expectations. Collectively the results shed light on the effect of increased ownership concentration on tax avoidance.

Keywords

Tax Avoidance; Agency Costs; Institutional Ownership; Private Ownership; Crime and Corruption; Taxation; Agency Theory

Citation

Khan, Mozaffar N., Suraj Srinivasan, and Liang Tan. "Institutional Ownership and Corporate Tax Avoidance: New Evidence." Accounting Review 92, no. 2 (March 2017): 101–122.
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About The Author

Suraj Srinivasan

Accounting and Management
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More from the Authors
  • Ginkgo Bioworks vs. Scorpion Capital: The Debate Over Related-Party Revenues By: Aiyesha Dey, Jonas Heese, Suraj Srinivasan and Annelena Lobb
  • Creating and Measuring Purpose at Viega By: Ethan Rouen and Suraj Srinivasan
  • Sustainability Reporting at Dollar Tree, Inc. By: Suraj Srinivasan and Li-Kuan Ni
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