Can corporate diversification induce more tax avoidance?

This study investigates whether there is a tax avoidance difference between stand-alone firms and diversified firms. Stand-alone firms are defined as firms that always report only one business segment and diversified firms as firms that report more than one business segment. I show that diversified firms persistently engage in fewer tax avoidance practices than stand-alone firms. This finding cannot be explained by firm characteristics and ownership structure, and is insensitive to alternative testing methods. I interpret the main result as indicating that lower levels of tax avoidance in diversified firms are not primarily altered by corporate diversification, and tax effects are not of first-order importance in corporate diversification.