The Influence of Common Institutional Ownership on Corporate Tax Planning

Part of the Lubar Research Seminar Series

Speaker: Thomas Kubick, University of Nebraska -Lincoln

Common ownership has increased substantially over the past few decades and has become an important influence over corporate policies. We predict and find that firms commonly owned by the same institution engage in more tax planning. We also observe that the common ownership influence on corporate tax planning is stronger when the institution has lower information acquisition and processing costs. Further tests show that commonly owned firms exhibit less aggressive financial reporting of income taxes and more sustainable corporate tax outcomes. Finally, we revisit inferences from prior literature examining the effect of institutional ownership on tax planning and demonstrate that the magnitudes documented in previous research are strongest when a common owner is present. This latter result underscores the importance of considering the effect of common ownership on corporate tax policies.