Stock liquidity and corporate tax avoidance

Yangyang Chen, Rui Ge (), Henock Louis and Leon Zolotoy
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Yangyang Chen: Hong Kong Polytechnic University
Rui Ge: Shenzhen Audencia Business School - Shenzhen University
Henock Louis: Pennsylvania State University
Leon Zolotoy: University of Melbourne

Review of Accounting Studies, 2019, vol. 24, issue 1, No 9, 309-340

Abstract: 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.

Keywords: Stock liquidity; Tax avoidance; Agency conflicts (search for similar items in EconPapers)
JEL-codes: G10 G30 M40 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (21)

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DOI: 10.1007/s11142-018-9479-6

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