We find robust evidence that foreign institutional investors are negatively associated with their investee firms' tax avoidance. To mitigate endogeneity concerns, we apply three identification strategies. First, we implement a two-stage least squares model. Second, we perform a difference-in-differences analysis by exploiting China's legal reform, Qualified Foreign Institutional Investors program, as a quasi-natural experiment. Third, we compare changes in corporate tax avoidance in response to a significant increase in FIIs. We further find that the negative association is dominated by FIIs from countries with high tax morale and FIIs from countries with strong shareholder protection. Finally, we find that the extent of tax morale and shareholder protection in the country where an investee firm is located also matters. We conclude that FIIs play an active role in shaping investee firms' corporate tax avoidance policy.
We find robust evidence that foreign institutional investors are negatively associated with their investee firms' tax avoidance. To mitigate endogeneity concerns, we apply three identification strategies. First, we implement a two-stage least squares model. Second, we perform a difference-in-differences analysis by exploiting China's legal reform, Qualified Foreign Institutional Investors program, as a quasi-natural experiment. Third, we compare changes in corporate tax avoidance in response to a significant increase in FIIs. We further find that the negative association is dominated by FIIs from countries with high tax morale and FIIs from countries with strong shareholder protection. Finally, we find that the extent of tax morale and shareholder protection in the country where an investee firm is located also matters. We conclude that FIIs play an active role in shaping investee firms' corporate tax avoidance policy.
Abstract:We find robust evidence that foreign institutional investors are negatively associated with their investee firms' tax avoidance. To mitigate endogeneity concerns, we apply three identification strategies. First, we implement a two-stage least squares model. Second, we perform a difference-in-differences analysis by exploiting China's legal reform, Qualified Foreign Institutional Investors program, as a quasi-natural experiment. Third, we compare changes in corporate tax avoidance in response to a significant increase in FIIs. We further find that the negative association is dominated by FIIs from countries with high tax morale and FIIs from countries with strong shareholder protection. Finally, we find that the extent of tax morale and shareholder protection in the country where an investee firm is located also matters. We conclude that FIIs play an active role in shaping investee firms' corporate tax avoidance policy.JEL classification: G23, G32, H26, M41
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.