Corporate Governance and Tax Avoidance: Evidence from U.S. Cross-listing

Using a sample of cross-listed firms from 51 countries and a difference-in-differences approach that exploits corporate governance shocks induced by cross-listing in the U.S., we find that firms tend to engage in less tax avoidance after cross-listing. This effect is more pronounced for firms that experience significant improvements in corporate governance and for firms from countries with weaker shareholder protection and disclosure requirements. For cross-listed firms with improved corporate governance after cross-listing, tax avoidance activities pursued after cross-listing are positively associated with firm value. Taken together, the results indicate that cross-listing in the U.S. helps align the interests of managers and shareholders and reduces managerial diversion. This finding is consistent with the view that firm- and country-level corporate governance are important determinants of corporate tax-sheltering activities.