Axel Hilling

The aim of this paper is to examine how various types of investors react, and how ownership structures of firms involved in unethical tax practices change once these unethical behaviours are made public. It combines news data with market data to identify investor reactions to tax scandals. Using a staggered diff-in-diff approach, we find that different ownership classes such as hedge funds, banks, individuals, and governments do not significantly change their ownership positions after a tax scandal. Further, we only find economically small and statistically insignificant reactions in cost of equity, trading volume, and equity volatility. Taken together, these findings challenge the effectiveness of market discipline through transparency and accountability, and highlight the need for alternative policy interventions to address unethical tax practices. From a broader perspective, these results suggest that transparency alone may not be sufficient to drive meaningful changes in a company’s behavior. However, transparency may still play a crucial role in strengthening governance mechanisms and driving the shift toward more responsible companies. Therefore, we stress the need for a comprehensive, longer-term research agenda to explore how transparency, combined with evolving stakeholder attitudes toward taxes, can promote meaningful changes in tax governance and practices by companies over time.