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Does index addition affect corporate tax avoidance?

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  • Huseynov, Fariz
  • Sardarli, Sabuhi
  • Zhang, Wei

Abstract

We examine corporate tax avoidance of firms around addition to the S&P 500 index. We find that corporate tax avoidance for firms at high levels of tax avoidance decreases after index addition, whereas tax avoidance for firms at low levels of tax avoidance increases after index addition. We disentangle the impact of changing governance practices from that of declining investment opportunities. Our findings indicate that the changes in tax avoidance can be attributed to improving governance practices, specifically higher institutional ownership and executive compensations, and this impact is above and beyond the changes in growth opportunities of index firms.

Suggested Citation

  • Huseynov, Fariz & Sardarli, Sabuhi & Zhang, Wei, 2017. "Does index addition affect corporate tax avoidance?," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 241-259.
    • Handle: RePEc:eee:corfin:v:43:y:2017:i:c:p:241-259
    DOI: 10.1016/j.jcorpfin.2017.01.008
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    3. Sabri Boubaker & Imen Derouiche & Hung Nguyen, 2022. "Voluntary disclosure, tax avoidance and family firms," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 26(1), pages 129-158, March.
    4. Ahmed A. Sarhan, 2024. "Corporate social responsibility and tax avoidance: the effect of shareholding structure—evidence from the UK," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 21(1), pages 1-15, March.
    5. Chen, Yunsen & Huang, Jianqiao & Li, Xiao & Ni, Xiaoran, 2023. "Financial market opening and corporate tax avoidance: Evidence from staggered quasi-natural experiments," Finance Research Letters, Elsevier, vol. 54(C).
    6. Shams, Syed & Bose, Sudipta & Gunasekarage, Abeyratna, 2022. "Does corporate tax avoidance promote managerial empire building?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 18(1).
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    8. Alharbi, Samar & Atawnah, Nader & Al Mamun, Md & Ali, Muhammad Jahangir, 2022. "Local culture and tax avoidance: Evidence from gambling preference behavior," Global Finance Journal, Elsevier, vol. 52(C).
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    10. Alfred James Kimea & Msizi Mkhize & Haruna Maama, 2023. "Firm-specific Determinants of Aggressive Tax Management among East African Firms," International Journal of Economics and Financial Issues, Econjournals, vol. 13(3), pages 100-108, May.
    11. Kiesewetter, Dirk & Manthey, Johannes, 2017. "The relationship between corporate governance and tax avoidance - evidence from Germany using a regression discontinuity design," arqus Discussion Papers in Quantitative Tax Research 218, arqus - Arbeitskreis Quantitative Steuerlehre.
    12. Ayoub Zeraibi & Daniel Balsalobre-Lorente & Khurram Shehzad, 2020. "Examining the Asymmetric Nexus between Energy Consumption, Technological Innovation, and Economic Growth; Does Energy Consumption and Technology Boost Economic Development?," Sustainability, MDPI, vol. 12(21), pages 1-17, October.

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    More about this item

    Keywords

    Tax avoidance; Effective tax rate; Corporate governance; Index addition;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G3 - Financial Economics - - Corporate Finance and Governance
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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