This paper examines whether and how external country-level corporate governance devices affect corporate tax avoidance.
Using a panel of public firms across 33 countries, it shows that laws empowering minority shareholders hinder corporate tax avoidance, consistent with shareholder protection laws spilling over to tax avoidance through reduced income diversion.
The study corroborates the validity of these findings using a major corporate governance reform in Italy.
In cross-sectional tests, it further documents that firms in countries with stricter transfer pricing rules and stronger tax enforcement reduce tax avoidance to a larger extent.
Finally, through path analysis, the author provides evidence consistent with firms shifting less income to foreign countries in response to stronger minority shareholder rights.
Overall, these findings suggest that minority shareholder protection laws can safeguard outside investors and the government against expropriation by insiders.