Tax Aggressiveness and Insider/Family Ownership: Evidence from Canadian Firms

Abstract

There is an emerging debate about whether firms tradeoff between tax savings and reported earnings. Frank et al. (2009), for example, find that tax reporting aggressiveness and financial reporting aggressiveness are positively correlated, a finding that is different from that established in the earlier literature where tax and financial reporting aggressiveness required firms to make trade-offs (e.g., Shackelford and Shevlin 2001). This study contributes to the debate by examining the recent behavior of Canadian firms, and investigating whether certain firms are more likely to pursue both or trade-off between the two. This study finds that while tax aggressiveness is negatively associated with financial reporting aggressiveness, suggesting the existence of a trade-off, firms with higher insider and family ownership tradeoff less between the two factors. Furthermore, firms whose ownership includes large stakes by insiders and family members are more aggressive in pursuing tax savings compared to other firms.