Tax-Motivated Income Shifting and the Information Environment

Abstract

We examine the information environment consequences that occur when U.S. multinational corporations (MNCs) engage in outbound income shifting. Using a new measure of outbound income shifting that considers evidence of prior outbound shifting and firms’ incentives, we find income shifting increases information asymmetry, private information gathering, and information uncertainty. Cross-sectional tests reveal that the presence of monitoring institutional investors mitigates the information environment consequences of income shifting. Our study provides evidence that significant information environment consequences are associated with tax-motivated income shifting.