Financing frictions and investment smoothing: Online governance of tax-induced spikes

Liao, Yinchao and Yue, Qi 2026. Financing frictions and investment smoothing: Online governance of tax-induced spikes. Finance Research Letters 98 , 109848. 10.1016/j.frl.2026.109848

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Abstract

This paper examines whether informal governance corrects distortions in intertemporal capital allocation. Using online investor interaction as an empirical setting, we find that such governance curbs tax-induced investment spikes. The effect functions through a financing channel: a reduction in information asymmetry relaxes financing constraints, which in turn crowds out firms’ endogenous reliance on tax-deductible investment. Moreover, this smoothing is associated with higher future profitability, suggesting an efficiency improvement rather than a mere temporal shift in tax-planning. Our findings establish financing frictions as the primary channel through which this informal governance improves investment efficiency.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Schools > Business (Including Economics)
Publisher:	Elsevier BV
ISSN:	1544-6123
Date of Acceptance:	20 March 2026
Last Modified:	30 Mar 2026 13:30
URI:	https://orca.cardiff.ac.uk/id/eprint/186094

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