Does Information Asymmetry Affect Corporate Tax Aggressiveness?

69 Pages Posted: 6 Aug 2014 Last revised: 17 Jun 2018

See all articles by Tao Chen

Tao Chen

Nanyang Technological University (NTU) - Division of Banking & Finance

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Date Written: August 5, 2014

Abstract

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.

Keywords: Information asymmetry; Analyst coverage; Corporate tax aggressiveness; Natural experiment; Broker closures and mergers

JEL Classification: G24; G32; G30

Suggested Citation

Chen, Tao and Lin, Chen, Does Information Asymmetry Affect Corporate Tax Aggressiveness? (August 5, 2014). 27th Australasian Finance and Banking Conference 2014 Paper, Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2476224

Tao Chen

Nanyang Technological University (NTU) - Division of Banking & Finance ( email )

S3-B1A-08, Nanyang Avenue
Singapore, 639798
Singapore

Chen Lin (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

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