Analyst coverage and corporate tax aggressiveness |
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| Institution: | 1. School of Accountancy, University of Nebraska-Lincoln, Lincoln, NE 68588 USA;2. Lally School of Management, Rensselaer Polytechnic Institute, Troy, NY 12180, USA;3. Kogod School of Business, American University, Washington, DC 20016, USA\n;1. University of Kansas, Accounting and Information Systems Department, 315-F Summerfield, Lawrence, KS 66045, United States;2. Clemson University, Department of Finance, 421 Sirrine Hall, Clemson, SC 29634, United States;1. School of Business, Renmin University of China, China;2. School of Business, Collaborative Innovation Centre for State-owned Assets Administration, Beijing Technology and Business University, China;1. Sy Syms School of Business, Yeshiva University, New York, NY 10033, United States\n;2. C. T. Bauer College of Business, University of Houston, Houston, TX 77204-6021, United States\n;3. Von Allmen School of Accountancy, Gatton College of Business and Economics, University of Kentucky, Lexington, KY 40506, United States |
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| Abstract: | We examine the impact of analyst coverage on corporate tax aggressiveness. To address endogeneity concerns, we perform a difference-in-differences analysis using a setting which causes exogenous decreases in analyst coverage. Our tests identify a negative causal effect of analyst coverage on tax aggressiveness, suggesting that higher analyst coverage constrains corporate tax aggressiveness. Further cross-sectional variation tests find that this constraining effect on tax aggressiveness is more pronounced in firms with lower investor recognition and firms with more opaque information environments. Our results are consistent with the notion that higher analyst coverage increases the visibility of aggressive tax planning behavior as well as heightens analysts’ demand for more transparent information, which in turn reduces tax aggressiveness. |
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