Information Flows, Tax Avoidance Policy and Firm-Level Institutional Variation: International Evidence

• In Event: International Reporting and Financial Markets

Abstract

Using a large sample of Type I offshore firms, i.e., firms with their headquarters registered in 14 jurisdictions or countries identified as offshore financial centers (OFCs), and firms with no offshore operations from 19 countries and jurisdictions that are not OFCs, we investigate the extent to which firm-specific information is capitalized into stock prices measured by stock price synchronicity. We also examine whether synchronicity is higher for Type II offshore firms, i.e., U.S. and U.K. companies that set up affiliates in an OFC or OFCs, compared with U.S. and U.K. firms with no OFC affiliates. We find that synchronicity is higher for both Type I and Type II offshore firms than for their respective benchmark firms with no offshore operations. The above results hold even when the extent of a firm’s offshore operations is proxied by the extent of tax avoidance or by the offshore characteristics of an OFC where offshore operations take place.

Authors

• Jeong-bon Kim, City University of Hong Kong

• Tiemei Li, University of Ottawa