No abstract

We examine the link between corporate governance, managerial incentives, and corporate tax avoidance. Similar to other investment opportunities that involve risky expected cash flows, unresolved agency problems may lead managers to engage in more or less corporate tax avoidance than shareholders would otherwise prefer. Consistent with the mixed results reported in prior studies, we find no relation between various corporate governance mechanisms and tax avoidance at the conditional mean and median of the tax avoidance distribution. However, using quantile regression, we find a positive relation between board independence and financial sophistication for low levels of tax avoidance, but a negative relation for high levels of tax avoidance. These results indicate that these governance attributes have a stronger relation with more extreme levels of tax avoidance, which are more likely to be symptomatic of over-and under-investment by managers. Abstract: We examine the link between corporate governance, managerial incentives, and corporate tax avoidance. Similar to other investment opportunities that involve risky expected cash flows, unresolved agency problems may lead managers to engage in more or less corporate tax avoidance than shareholders would otherwise prefer. Consistent with the mixed results reported in prior studies, we find no relation between various corporate governance mechanisms and tax avoidance at the conditional mean and median of the tax avoidance distribution. However, using quantile regression, we find a positive relation between board independence and financial sophistication for low levels of tax avoidance, but a negative relation for high levels of tax avoidance. These results indicate that these governance attributes have a stronger relation with more extreme levels of tax avoidance, which are more likely to be symptomatic of over-and under-investment by managers.JEL: G34, H25, H26, K34, M41

We investigate whether aggressive tax planning firms have a less transparent information environment. Although tax planning provides expected tax savings, it can simultaneously increase the financial complexity of the organization. And to the extent that this greater financial complexity cannot be adequately clarified through communications with outside parties, such as investors and analysts, transparency problems can arise. Our investigation of the association between tax aggressiveness and information asymmetry, analysts' forecast errors, and earnings quality suggests that aggressive tax planning is associated with lower corporate transparency. We also find evidence that managers at tax-aggressive firms attempt to mitigate these transparency problems by increasing various tax-related disclosures. Overall, our results suggest that firms face a trade-off between tax benefits and financial transparency when choosing the aggressiveness of their tax planning. JEL Classifications: G30; H26; M41.

We examine the link between corporate governance, managerial incentives, and corporate tax avoidance. Similar to other investment opportunities that involve risky expected cash flows, unresolved agency problems may lead managers to engage in more or less corporate tax avoidance than shareholders would otherwise prefer. Consistent with the mixed results reported in prior studies, we find no relation between various corporate governance mechanisms and tax avoidance at the conditional mean and median of the tax avoidance distribution. However, using quantile regression, we find a positive relation between board independence and financial sophistication for low levels of tax avoidance, but a negative relation for high levels of tax avoidance. These results indicate that these governance attributes have a stronger relation with more extreme levels of tax avoidance, which are more likely to be symptomatic of over-and under-investment by managers. Abstract: We examine the link between corporate governance, managerial incentives, and corporate tax avoidance. Similar to other investment opportunities that involve risky expected cash flows, unresolved agency problems may lead managers to engage in more or less corporate tax avoidance than shareholders would otherwise prefer. Consistent with the mixed results reported in prior studies, we find no relation between various corporate governance mechanisms and tax avoidance at the conditional mean and median of the tax avoidance distribution. However, using quantile regression, we find a positive relation between board independence and financial sophistication for low levels of tax avoidance, but a negative relation for high levels of tax avoidance. These results indicate that these governance attributes have a stronger relation with more extreme levels of tax avoidance, which are more likely to be symptomatic of over-and under-investment by managers.JEL: G34, H25, H26, K34, M41

This study examines former Arthur Andersen clients and provides evidence on the factors involved in their selection of new auditors after Andersen's collapse. Using a unique dataset that identifies whether former Andersen clients followed their audit team to a new auditor, findings reveal companies with greater agency concerns were more likely to sever ties with their former auditor, whereas those with greater switching costs were more likely to follow their former auditor. We also investigate the effect of the forced auditor change on financial statement quality in an effort to provide insight into the mandatory auditor rotation debate. Using performance-adjusted discretionary accruals as a proxy for reporting quality, our results fail to reveal significant improvements for companies with extreme discretionary accruals that severed ties with Andersen, which is inconsistent with the notion that mandatory rotation improves financial reporting.