The Effect of Foreign Institutional Ownership on Corporate Tax Avoidance: International Evidence

We find that foreign institutional investors (FIIs) reduce their investee firms’ tax avoidance. We provide evidence that the effect is driven by the institutional distance between FIIs’ home countries/regions and host countries/regions. Specifically, we find that the effect is driven by the influence of FIIs from countries/regions with high-quality institutions (i.e., common law, high government effectiveness, and high regulatory quality) on investee firms located in countries/regions with low-quality institutions. Furthermore, we show that the effect is concentrated on FIIs with little experience in the investee countries/regions or FIIs with stronger monitoring incentives. Finally, we find that FIIs are more likely to vote against management if the firm has a higher level of tax avoidance.

01. March 2022

Authors Iftekhar Hasan Incheol Kim Haimeng Teng Qiang Wu

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Professor Iftekhar Hasan, PhD
Professor Iftekhar Hasan, PhD

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