Does Information Asymmetry Affect Corporate Tax Aggressiveness?

Tao Chen and Chen Lin

Journal of Financial and Quantitative Analysis, 2017, vol. 52, issue 5, 2053-2081

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.

Date: 2017
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