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.
|Journal||Journal of International Accounting, Auditing and Taxation|
|Publication status||Published - Mar 2022|
- Foreign institutional ownership
- Institutional distance
- Tax avoidance
ASJC Scopus subject areas