Geographic Location and Corporate Tax Planning

We examine the impact of corporate geographic location on tax planning in U.S. firms from 1996–2018. We find that urban firms are associated with a significantly lower level of aggressive tax planning than rural firms. Further analysis shows that the soft information advantage to investors and various monitoring agents on urban firms is vital in curbing aggressive corporate tax practices. The results suggest that geographic proximity to urban areas increases the accessibility of informal information, which facilitates monitoring efficiency and reduces controversial behaviors in urban firms. The results remain robust after controlling for potential biases attributable to variable definition, model specification, and endogeneity