Publication Type
Journal Article
Version
acceptedVersion
Publication Date
3-2019
Abstract
We examine the association between corporate tax aggressiveness and theprofitability of insider trading under the assumption that insider tradingprofits reflect managerial opportunism. We document that insider purchaseprofitability, but not sales profitability, is significantly higher on average inmore tax aggressive firms. We also find that the positive association between taxaggressiveness and insider purchase profitability is attenuated for firms withmore effective monitoring and is accentuated for firms with a more opaqueinformation environment.In addition, we provide empirical evidence that tax aggressiveness issignificantly associated with greater insider sales volume in the fiscal yearprior to a stock price crash. Finally, we find that the association between taxaggressiveness and insider purchase profitability weakens after theintroduction of FIN 48, consistent with the increased transparency of taxpositions under the new disclosure requirement reducing insiders’ informationadvantage and hence their ability to profit from insider trading. To the extent that insider trading profitsreflect managerial opportunism, our results are consistent with managersexploiting the opacity arising from tax aggressive activities to extract rentfrom shareholders, particularly those who sold their shares to the managers. Ourfindings are particularly important in light of the number of studies relyingon the agency view of tax avoidance to develop arguments or to drawinferences.
Keywords
Tax aggressiveness, Insider trading, Managerial opportunism, Corporate opacity
Discipline
Accounting | Corporate Finance | Taxation
Research Areas
Corporate Governance, Auditing and Risk Management
Publication
Contemporary Accounting Research
Volume
36
Issue
1
First Page
230
Last Page
258
ISSN
0823-9150
Identifier
10.1111/1911-3846.12422
Publisher
Canadian Academic Accounting Association
Citation
CHUNG, Sung Gon; GOH, Beng Wee; LEE, Kiat Bee Jimmy; and SHEVLIN, Terry.
Corporate tax aggressiveness and insider trading. (2019). Contemporary Accounting Research. 36, (1), 230-258.
Available at: https://ink.library.smu.edu.sg/soa_research/1782
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1111/1911-3846.12422
Included in
Accounting Commons, Corporate Finance Commons, Taxation Commons