The Effect of Hedge Fund Activism on Corporate Tax Avoidance

This paper examines the impact of hedge fund activism on corporate tax avoidance. We find that relative to matched control firms, businesses targeted by hedge fund activists exhibit lower tax avoidance levels prior to hedge fund intervention, but experience increases in tax avoidance after the inter...

Full description

Saved in:
Bibliographic Details
Published inThe Accounting review Vol. 87; no. 5; pp. 1493 - 1526
Main Authors Cheng, C. S. Agnes, Huang, Henry He, Li, Yinghua, Stanfield, Jason
Format Journal Article
LanguageEnglish
Published Sarasota American Accounting Association 01.09.2012
Subjects
Activism
Asset income
Board of directors
Business structures
Cash
Corporate governance
Corporate income taxes
Corporate taxation
Corporate taxes
Financial leverage
Fund management
Hedge funds
Hedging
Income taxes
Risk
Shareholder activism
Stockholders
Studies
Tax avoidance
Tax incentives
Tax increases
Tax planning
U.S.A
United States > US
Online AccessGet full text

Cover

More Information
Summary:This paper examines the impact of hedge fund activism on corporate tax avoidance. We find that relative to matched control firms, businesses targeted by hedge fund activists exhibit lower tax avoidance levels prior to hedge fund intervention, but experience increases in tax avoidance after the intervention. Moreover, findings suggest that the increase in tax avoidance is greater when activists have a successful track record of implementing tax changes and possess tax interest or knowledge as indicated by their Securities and Exchange Commission (SEC) 13D filings. We also find that these greater tax savings do not appear to result from an increased use of high-risk and potentially illegal tax strategies, such as sheltering. Taken together, the results suggest that shareholder monitoring of firms, in the form of hedge fund activism, improves tax efficiency.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0001-4826
1558-7967
DOI:10.2308/accr-50195