This paper examines the interaction between income diversion and firm performance. Using unique Russian banking transaction data, I identify 42,483 spacemen, fly-bynight firms created specifically for income diversion. Next, I build a direct measure of income diversion for 45,429 companies and show that it is negatively related to firm performance. I identify the main reason for the observed effect as managerial diversion rather than tax evasion per se. I further show that stricter tax enforcement can improve firm performance: a one standard deviation increase in tax enforcement corresponds to an increase in the annual revenue growth rate of 2.6%. * Maxim Mironov is at the IE Business School, Spain. I am grateful to the members of my dissertation committee: Gary Becker, Atif Mian, Per Stromberg, and Luigi Zingales. This paper has benefited significantly from suggestions by an anonymous referee,
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