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Do common institutional owners' activisms deter tax avoidance? Evidence from an emerging economy

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  • Athira, A.
  • Lukose, P.J. Jijo

Abstract

We examine the association between common institutional ownership and tax avoidance in an institutional setting characterized by concentrated ownership and principal-principal agency conflict. We find a negative association between tax avoidance and common institutional ownership, and this relationship is stronger among firms with more analyst coverage and higher concentrated ownership. Overall, our results support the monitoring efficiency of institutions and their role in internalizing the negative externality of a firm's tax avoidance on common-industry peers. Further, the reduction in tax avoidance in firms with common institutional ownership is associated with a higher firm value. By demonstrating the role of common institutional owners in deterring tax aggressiveness, our study sheds light on the principal-principal agency cost of tax avoidance in emerging economies.

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  • Athira, A. & Lukose, P.J. Jijo, 2023. "Do common institutional owners' activisms deter tax avoidance? Evidence from an emerging economy," Pacific-Basin Finance Journal, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:pacfin:v:80:y:2023:i:c:s0927538x23001610
    DOI: 10.1016/j.pacfin.2023.102090
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    2. Kałdoński, Michał & Jewartowski, Tomasz, 2024. "Tax aggressiveness under concentrated ownership: The importance of long-term institutional investors," Finance Research Letters, Elsevier, vol. 65(C).

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    More about this item

    Keywords

    Institutional investors; Ownership structure; Corporate governance; Tax avoidance;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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