Jeong-Bon Kim V (City University of Hong Kong), Yinghua Li (Purdue University) & Liandong Zhang (City University of Hong Kong) have posted Corporate Tax Avoidance and Stock Price Crash Risk: Firm-Level Analysis, 66 J. Fin. Econ. ___ (2010), on SSRN. Here is the abstract:

Using a large sample of U.S. firms for the period 1995-2008, we provide strong and robust evidence that corporate tax avoidance is positively associated with firm-specific stock price crash risk. This finding is consistent with the following view: Tax avoidance facilitates managerial rent extraction and bad news hoarding activities for extended periods by providing tools, masks, and justifications for these opportunistic behaviors. The hoarding and accumulation of bad news for extended periods lead to stock price crashes when the accumulated hidden bad news crosses a tipping point, and thus comes out all at once. Moreover, we show that the positive relation between tax avoidance and crash risk is attenuated when firms have strong external monitoring mechanisms such as high institutional ownership, high analyst coverage, and greater takeover threat from corporate control markets.

(Hat Tip: George Mundstock.)