The effect of hedge fund activism on corporate tax avoidance

C. S. Agnes Cheng, Henry He Huang, Yinghua Li, Jason Stanfield

Research output: Contribution to journalArticlepeer-review

118 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)1493-1526
Number of pages34
JournalAccounting Review
Volume87
Issue number5
DOIs
StatePublished - Aug 1 2012
Externally publishedYes

Keywords

  • Corporate governance
  • Hedge fund activism
  • Tax avoidance

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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