How Does the Market for Corporate Control Impact Tax Avoidance? Evidence from International M&A Laws
Income taxes are a major expense for profitable corporations, oftentime 25 percent or more of pretax income. This study exploits a setting - the market for corporate control - to test competing agency-based and risk-based explanations of corporate tax planning. Exploiting the staggered enactment of M&A laws across countries that increased the threat of takeover as an exogenous shock that allows a powerful difference-in-differences design, we find a significant reduction in tax avoidence following the takeover law passage. Our analysis suggests that reduced management private benefits consumption, rather than managerial effort aversion or increased risk concerns associated with aggressive tax strategies, is the likely mechanism through which takeover laws impact tax avoidance. Collectively, our findings extend the literature by highlighting the role of the corporate control market in shaping cross-sectional variation in corporate tax avoidance.
About the Speaker:
HU Jinshuai is associate dean of the Institute for Financial and Accounting Studies, Xiamen University, dean of the QTEM International Masters Alliance, associate professor of Accounting, PhD supervisor, and senior visiting scholar at the University of California, Irvine. He holds a Masters degree in Accounting from Xiamen University and a PhD in Accounting from Hong Kong Baptist University. His research areas include accounting research on Chinese and international capital markets, financial accounting, financial reporting, corporate governance, etc.