Stock liquidity and corporate tax avoidance

Yangyang Chen, Rui Ge, Henock Louis, Leon Zolotoy

Research output: Contribution to journalArticlepeer-review

37 Scopus citations


We show that firms with higher stock liquidity engage less in extreme (i.e., overly aggressive or overly conservative) tax avoidance. The effect of stock liquidity on tax avoidance is economically meaningful and robust across alternative measures of tax avoidance and stock liquidity. The findings also hold after controlling for potential endogenous effects. We further document that the effect of stock liquidity on tax avoidance is amplified for firms with high proportions of activist shareholders and attenuated for firms with high levels of stock price informativeness. Overall, our findings suggest that stock liquidity mitigates extreme tax avoidance by enhancing shareholders’ monitoring over firm management.

Original languageEnglish (US)
Pages (from-to)309-340
Number of pages32
JournalReview of Accounting Studies
Issue number1
StatePublished - Mar 15 2019

All Science Journal Classification (ASJC) codes

  • Accounting
  • General Business, Management and Accounting


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