When dedicated investors are distracted: The effect of institutional monitoring on corporate tax avoidance

Bing Li, Zhenbin Liu, Rui Wang*

*Corresponding author for this work

    Research output: Contribution to journalJournal articlepeer-review

    10 Citations (Scopus)

    Abstract

    This study investigates whether loosened monitoring from institutional investors affects firm tax planning decisions. We take advantage of shocks to unrelated parts of institutional investors’ portfolios and examine how plausibly exogenous changes in monitoring from institutional investors influence the level of firm tax avoidance. We find that investee firms significantly increase their temporary tax avoidance when there are temporary reductions in the attention of their dedicated institutional investors. Cross-sectional tests show that the tax impact of reduced dedicated investor attention and monitoring intensity is more pronounced when a firm's information environment is less transparent and when a firm is subject to weaker internal governance. Our findings are robust to alternative research designs.

    Original languageEnglish
    Article number106873
    Number of pages19
    JournalJournal of Accounting and Public Policy
    Volume40
    Issue number6
    DOIs
    Publication statusPublished - Oct 2021

    Scopus Subject Areas

    • Accounting
    • Sociology and Political Science

    User-Defined Keywords

    • Institutional Investor
    • Limited attention
    • Monitoring
    • Tax avoidance

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