Does Corporate Tax Avoidance Reduce Individual Investors’ Willingness to Own Stock?

We use data on individual investors' stock holdings and retail trades to investigate whether corporate tax avoidance affects the willingness of individual investors to own stock. Consistent with corporate tax avoidance increasing the perceived risk of owning stock and the costs of processing financial information, we provide evidence that individual investors own less stock of firms that avoid more taxes and report more uncertain tax positions. We then examine whether investor sophistication and investment strategies impact individuals' willingness to own stock in these firms. Our results suggest that more sophisticated investors and investors with shorter investment horizons own more stock in high tax avoidance firms, while more conservative investors own less. Overall, our findings are consistent with significant variation in how individual investors perceive corporate tax avoidance