Does headquarters location matter in corporate tax avoidance?*

This study examines whether corporate headquarters (CHQ) location influences firms' tax avoidance practice. Our two-stage OLS regression analysis demonstrates that firms engage in less (more) tax avoidance when their CHQ are located near (farther away from) urban areas. Using recursive path analysis, we further examine the channels through which CHQ location impacts tax avoidance practice and find that the overall negative effect comprises a larger direct negative effect of CHQ location and a smaller indirect negative effect of CHQ location through financial reporting opacity and number of analysts following on firms' tax avoidance. Furthermore, our nonrecursive path analysis shows that while CHQ location affects tax avoidance through direct and indirect channels, tax avoidance does not affect the choice of CHQ location. Finally, we find that when firms switch their CHQ from urban areas to rural areas (vice versa), their tax avoidance increases (decreases) accordingly. Our study thus provides a useful extension of tax avoidance studies and the literature on CHQ location's effect on firms' strategic decisions and performance.