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Tax Avoidance, Managerial Ability, and Investment Efficiency

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  • Inder K. Khurana
  • William J. Moser
  • K. K. Raman

Abstract

In this paper, we examine the impact of managerial ability on the relation between corporate tax avoidance and investment efficiency. Using a sample of US firms from 1994–2015, we find that as tax avoidance increases, firms with high (low) managerial ability exhibit increased (reduced) investment efficiency, that is, smaller (greater) deviations from predicted levels of investment spending. Supplemental analysis also shows that as tax avoidance increases, strong (weak) corporate governance increases (decreases) investment efficiency. Overall, our findings shed light on whether corporate tax avoidance generates wealth for the firm's shareholders or simply exacerbates agency problems.

Suggested Citation

  • Inder K. Khurana & William J. Moser & K. K. Raman, 2018. "Tax Avoidance, Managerial Ability, and Investment Efficiency," Abacus, Accounting Foundation, University of Sydney, vol. 54(4), pages 547-575, December.
    • Handle: RePEc:bla:abacus:v:54:y:2018:i:4:p:547-575
    DOI: 10.1111/abac.12142
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