Corporate tax avoidance and stock price crash risk: Firm-level analysis

Using a large sample of U.S. firms for the period 1995-2008, we provide strong and robust evidence that corporate tax avoidance is positively associated with firm-specific stock price crash risk. This finding is consistent with the following view: Tax avoidance facilitates managerial rent extraction...

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Main Authors: KIM, Jeong-Bon, LI, Yinghua, ZHANG, Liandong
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2011
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Online Access:https://ink.library.smu.edu.sg/soa_research/1704
https://ink.library.smu.edu.sg/context/soa_research/article/2731/viewcontent/CorporateTaxAvoidance_2010_pp.pdf
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spelling sg-smu-ink.soa_research-27312019-12-16T08:44:03Z Corporate tax avoidance and stock price crash risk: Firm-level analysis KIM, Jeong-Bon LI, Yinghua ZHANG, Liandong Using a large sample of U.S. firms for the period 1995-2008, we provide strong and robust evidence that corporate tax avoidance is positively associated with firm-specific stock price crash risk. This finding is consistent with the following view: Tax avoidance facilitates managerial rent extraction and bad news hoarding activities for extended periods by providing tools, masks, and justifications for these opportunistic behaviors. The hoarding and accumulation of bad news for extended periods lead to stock price crashes when the accumulated hidden bad news crosses a tipping point, and thus comes out all at once. Moreover, we show that the positive relation between tax avoidance and crash risk is attenuated when firms have strong external monitoring mechanisms such as high institutional ownership, high analyst coverage, and greater takeover threat from corporate control markets. 2011-06-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/soa_research/1704 info:doi/10.1016/j.jfineco.2010.07.007 https://ink.library.smu.edu.sg/context/soa_research/article/2731/viewcontent/CorporateTaxAvoidance_2010_pp.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School Of Accountancy eng Institutional Knowledge at Singapore Management University Tax avoidance crash risk agency theory governance extreme outcome Accounting Corporate Finance
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Tax avoidance
crash risk
agency theory
governance
extreme outcome
Accounting
Corporate Finance
spellingShingle Tax avoidance
crash risk
agency theory
governance
extreme outcome
Accounting
Corporate Finance
KIM, Jeong-Bon
LI, Yinghua
ZHANG, Liandong
Corporate tax avoidance and stock price crash risk: Firm-level analysis
description Using a large sample of U.S. firms for the period 1995-2008, we provide strong and robust evidence that corporate tax avoidance is positively associated with firm-specific stock price crash risk. This finding is consistent with the following view: Tax avoidance facilitates managerial rent extraction and bad news hoarding activities for extended periods by providing tools, masks, and justifications for these opportunistic behaviors. The hoarding and accumulation of bad news for extended periods lead to stock price crashes when the accumulated hidden bad news crosses a tipping point, and thus comes out all at once. Moreover, we show that the positive relation between tax avoidance and crash risk is attenuated when firms have strong external monitoring mechanisms such as high institutional ownership, high analyst coverage, and greater takeover threat from corporate control markets.
format text
author KIM, Jeong-Bon
LI, Yinghua
ZHANG, Liandong
author_facet KIM, Jeong-Bon
LI, Yinghua
ZHANG, Liandong
author_sort KIM, Jeong-Bon
title Corporate tax avoidance and stock price crash risk: Firm-level analysis
title_short Corporate tax avoidance and stock price crash risk: Firm-level analysis
title_full Corporate tax avoidance and stock price crash risk: Firm-level analysis
title_fullStr Corporate tax avoidance and stock price crash risk: Firm-level analysis
title_full_unstemmed Corporate tax avoidance and stock price crash risk: Firm-level analysis
title_sort corporate tax avoidance and stock price crash risk: firm-level analysis
publisher Institutional Knowledge at Singapore Management University
publishDate 2011
url https://ink.library.smu.edu.sg/soa_research/1704
https://ink.library.smu.edu.sg/context/soa_research/article/2731/viewcontent/CorporateTaxAvoidance_2010_pp.pdf
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