Stock Liquidity and Corporate Tax Avoidance
L Zolotoy, Yangyang Chen, Rui Ge, Henock Louis
Review of Accounting Studies | Springer Verlag | Published : 2019
We show that firms with higher stock liquidity engage less in extreme (i.e., overly aggressive or overly conservative) tax avoidance. The effect of stock liquidity on tax avoidance is economically meaningful and robust across alternative measures of tax avoidance and stock liquidity. The findings also hold after controlling for potential endogenous effects. We further document that the effect of stock liquidity on tax avoidance is amplified for firms with high proportions of activist shareholders and attenuated for firms with high levels of stock price informativeness. Overall, our findings suggest that stock liquidity mitigates extreme tax avoidance by enhancing shareholders’ monitoring ove..View full abstract
Awarded by Hong Kong Polytechnic University
Awarded by National Natural Science Foundation of China
Yangyang Chen acknowledges research funding from Hong Kong Polytechnic University (Startup Research Fund: 1-ZE5C). Rui Ge acknowledges research funding from the National Natural Science Foundation of China (project number: 71202091, 71672165).