Who Cares

Woodhead, Matt

doi:10.5040/9781350210479.00000004

Cited by 1 publication

(1 citation statement)

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“…Litigation imposes costs on firms through legal defense and settlement costs, managerial time, and reputational damage (Kim & Skinner, 2012). Although critics question whether shareholders benefit directly from these cases, the primary benefit of litigation is as a governance mechanism because the threat of litigation induces better behavior (Pritchard, 2002;Fisch, 2009;Crane & Koch, 2018). Absent this threat, managers are less inclined to focus on maximizing shareholder value (Donelson & Yust, 2014).…”

Section: Shareholder Litigationmentioning

confidence: 99%

The effect of shareholder scrutiny on corporate tax behavior: Evidence from shareholder tax litigation

Donelson,

Glenn,

McGuire

et al. 2023

Contemporary Accting Res

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This study examines the effect of shareholder scrutiny of corporate tax avoidance behavior and its related financial reporting. Specifically, we explore the factors associated with shareholder tax litigation and its effect on the future tax behavior of the sued firm and its peers. We find that sued firms have lower cash and GAAP effective tax rates (ETRs) and engage in extreme tax avoidance before litigation. After litigation, they decrease tax avoidance activities, relative to matched control firms. Peer firms in the same industry as sued firms similarly reduce their level of tax avoidance and the likelihood of extreme tax avoidance after the litigation, relative to control firms. Additional analyses suggest that sued firms change their tax avoidance behavior, rather than merely their tax financial reporting. Finally, the spillover results are strongest for peer firms with the most tax avoidance (i.e., the lowest cash ETRs) when the sued firm's alleged misconduct is revealed.This article is protected by copyright. All rights reserved.

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