Stock liquidity and corporate tax avoidance

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

13 Scopus Citations
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Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)309-340
Journal / PublicationReview of Accounting Studies
Volume24
Issue number1
Online published14 Jan 2019
Publication statusPublished - Mar 2019
Externally publishedYes

Abstract

We show that firms with higher stock liquidity engage less in extreme (i.e., overly aggressive or overly conservative) tax avoidance. The effect of stock liquidity on tax avoidance is economically meaningful and robust across alternative measures of tax avoidance and stock liquidity. The findings also hold after controlling for potential endogenous effects. We further document that the effect of stock liquidity on tax avoidance is amplified for firms with high proportions of activist shareholders and attenuated for firms with high levels of stock price informativeness. Overall, our findings suggest that stock liquidity mitigates extreme tax avoidance by enhancing shareholders’ monitoring over firm management.

Research Area(s)

  • Stock liquidity, Tax avoidance, Agency conflicts

Citation Format(s)

Stock liquidity and corporate tax avoidance. / Chen, Yangyang; Ge, Rui; Louis , Henock ; Zolotoy, Leon.

In: Review of Accounting Studies, Vol. 24, No. 1, 03.2019, p. 309-340.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review