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Tax Avoidance, Managerial Ability, and Investment Efficiency
Author(s) -
Khurana Inder K.,
Moser William J.,
Raman K. K.
Publication year - 2018
Publication title -
abacus
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.632
H-Index - 45
eISSN - 1467-6281
pISSN - 0001-3072
DOI - 10.1111/abac.12142
Subject(s) - tax avoidance , investment (military) , monetary economics , shareholder , business , corporate governance , corporate tax , sample (material) , economics , microeconomics , finance , double taxation , chemistry , chromatography , politics , political science , law
In this paper, we examine the impact of managerial ability on the relation between corporate tax avoidance and investment efficiency. Using a sample of US firms from 1994–2015, we find that as tax avoidance increases, firms with high (low) managerial ability exhibit increased (reduced) investment efficiency, that is, smaller (greater) deviations from predicted levels of investment spending. Supplemental analysis also shows that as tax avoidance increases, strong (weak) corporate governance increases (decreases) investment efficiency. Overall, our findings shed light on whether corporate tax avoidance generates wealth for the firm's shareholders or simply exacerbates agency problems.