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The effect of foreign institutional ownership on corporate tax avoidance: International evidence

Iftekhar Hasan (), Incheol Kim, Haimeng Teng and Qiang Wu

Journal of International Accounting, Auditing and Taxation, 2022, vol. 46, issue C

Abstract: We find that foreign institutional investors (FIIs) reduce their investee firms’ tax avoidance. We provide evidence that the effect is driven by the institutional distance between FIIs’ home countries/regions and host countries/regions. Specifically, we find that the effect is driven by the influence of FIIs from countries/regions with high-quality institutions (i.e., common law, high government effectiveness, and high regulatory quality) on investee firms located in countries/regions with low-quality institutions. Furthermore, we show that the effect is concentrated on FIIs with little experience in the investee countries/regions or FIIs with stronger monitoring incentives. Finally, we find that FIIs are more likely to vote against management if the firm has a higher level of tax avoidance.

Keywords: Institutional distance; Foreign institutional ownership; Tax avoidance (search for similar items in EconPapers)
JEL-codes: G23 G32 H26 M41 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jiaata:v:46:y:2022:i:c:s1061951821000653

DOI: 10.1016/j.intaccaudtax.2021.100440

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