Tax avoidance and firm value: evidence from China

2014 ◽  
Vol 5 (1) ◽  
pp. 25-42 ◽  
Author(s):  
Xudong Chen ◽  
Na Hu ◽  
Xue Wang ◽  
Xiaofei Tang
Keyword(s):  
Avoidance Behavior ◽  
Firm Value ◽  
Agency Costs ◽  
Fixed Effects ◽  
Tax Avoidance ◽  
Developed Countries ◽  
Corporate Tax ◽  
Content Type ◽  
Information Transparency ◽  
Negative Tone

Purpose – The purpose of this study is to examine whether corporate tax avoidance behavior increases firm value in Chinese context. A large number of studies conduct their designs on the consumption that tax avoidance represents wealth transfer from government to enterprises and therefore enhances firm value. This study argues that, contrast to developed countries, tax avoidance does not necessarily add value to opaque Chinese firms relative to transparent counterparts due to higher agency costs. Design/methodology/approach – Using a large sample of Chinese listed-firms data for the period 2001-2009 and fixed effects regression model, this study examines the relation between tax avoidance and firm value. A series of robustness checks are conducted to alleviate the concern of endogeneity. Findings – The authors find that tax avoidance behavior increases agency costs and reduces firm value. The authors further find that information transparency interacts with corporate tax avoidance, moderating the relation between tax avoidance and firm value. Investors in China react negatively to corporate tax avoidance behavior, but this negative reaction could be mitigated by information transparency. The results are robust to a series of alternative treatments, including varied measures, first-order differential approach and 2SLS. Originality/value – The results suggest that tax avoidance does not necessarily increase firm value, part of gains are encroached by self-serving managers. Moreover, investors in China downplay the significance of tax avoidance, although corporate information transparency could soften their negative tone.

Does family ownership reduce corporate tax avoidance? The moderating effect of audit quality

2017 ◽  
Vol 32 (7) ◽  
pp. 731-744 ◽  
Author(s):  
Safa Gaaya ◽  
Nadia Lakhal ◽  
Faten Lakhal
Keyword(s):  
Family Firms ◽  
Audit Quality ◽  
Tax Avoidance ◽  
Developed Countries ◽  
Moderating Effect ◽  
Family Ownership ◽  
Corporate Tax ◽  
External Audit ◽  
Content Type ◽  
Minority Interests

Purpose The purpose of this paper is to shed light on the effect of family ownership on corporate tax avoidance. It also investigates whether audit quality affects tax avoidance practices by family firms. Design/methodology/approach Based on a sample of 55 Tunisian listed companies from 2008 to 2013, the authors use GLS regression models estimated with robust standard errors, clustered at the firm level. Findings The results show that family ownership is positively associated with corporate tax avoidance practices, suggesting that families expropriate minority interests by extracting rents from tax-saving positions. These practices are less prominent after the 2011 Tunisian revolution, suggesting that the pressure from governments and non-governmental organizations against corruption and unethical behavior has increased after the revolution. However, the findings show that audit quality curbs the incentives of family firms to engage in aggressive tax positions, supporting the moderating effect of audit quality on the relation between family ownership and tax avoidance. Research limitations/implications These findings suggest that Tunisian family firms are likely to expropriate minority interests by extracting rents from tax-saving positions. However, in presence of high-quality audit, the relation turns negative, suggesting that external audit quality is an efficient corporate governance device that is likely to monitor family corporate decisions. Originality/value This paper extends previous research by investigating the moderating effect of external audit quality on the relation between tax avoidance and family ownership. It also examines tax avoidance by family firms in a unique setting: Tunisia, a transitioning economy subsequently to the 2011 revolution, where investors’ rights are weakly protected and the financial market is not well-developed as in more developed countries.

Impact of corporate tax aggressiveness on firm value: evidence from India

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Taruntej Singh Arora ◽  
Suveera Gill
Keyword(s):  
Corporate Governance ◽  
Emerging Economies ◽  
Firm Value ◽  
Fixed Effects ◽  
Negative Relationship ◽  
Moderating Effect ◽  
Corporate Tax ◽  
Content Type ◽  
Tax Aggressiveness ◽  
The Impact

PurposeThere is mixed evidence in the extant literature on the firm value implications of corporate tax aggressiveness in the developed economies. There are, however, limited studies that discuss this relationship in the case of emerging economies. The present study aims to bridge this research gap by exploring the relationship between corporate tax aggressiveness and firm value in context of the Indian economy.Design/methodology/approachThe sample comprises 547 S&P BSE 500 (Standard and Poor's Bombay Stock Exchange 500) Index companies for Financial Year (FY) 2009–10 through FY 2018–19. A fixed-effects panel model has been used to discern the impact of corporate tax aggressiveness on firm value with and without the moderating effect of a proxy for corporate governance strength.FindingsThe results highlight a significant negative relationship between corporate tax aggressiveness and firm value in India, whilst the analysis on the moderating effect of corporate governance strength on this relationship revealed a mix of significant and insignificant results. These results were robust to an alternate specification of the corporate governance strength proxy, the system GMM estimation employed to deal with endogeneity and a change in the Corporate Social Responsibility (CSR) regulation brought into effect by the Companies Act, 2013.Originality/valueThe study reveals a firm value discount associated with corporate tax aggressiveness in India which is likely due to its ability to increase opportunities for wealth expropriation by managers. This can further be attributed to the ineffective corporate governance mechanisms that make agency problems more severe in the case of emerging economies like India.

Women on the board of directors and corporate tax aggressiveness in Australia

2016 ◽  
Vol 29 (3) ◽  
pp. 313-331 ◽  
Author(s):  
Grant Richardson ◽  
Grantley Taylor ◽  
Roman Lanis
Keyword(s):  
Board Of Directors ◽  
Selection Bias ◽  
Tax Avoidance ◽  
Multivariate Regression Analysis ◽  
Corporate Tax ◽  
Content Type ◽  
Tax Aggressiveness ◽  
Self Selection ◽  
The Board Of Directors ◽  
The Impact

Purpose This paper aims to investigate the impact of women on the board of directors on corporate tax avoidance in Australia. Design/methodology/approach The authors use multivariate regression analysis to test the association between the presence of female directors on the board and tax aggressiveness. They also test for self-selection bias in the regression model by using the two-stage Heckman procedure. Findings This paper finds that relative to there being one female board member, high (i.e. greater than one member) female presence on the board of directors reduces the likelihood of tax aggressiveness. The results are robust after controlling for self-selection bias and using several alternative measures of tax aggressiveness. Research limitations/implications This study extends the extant literature on corporate governance and tax aggressiveness. This study is subject to several caveats. First, the sample is restricted to publicly listed Australian firms. Second, this study only examines the issue of women on the board of directors and tax aggressiveness in the context of Australia. Practical implications This research is timely, as there has been increased pressure by government bodies in Australia and globally to develop policies to increase female representation on the board of directors. Originality/value This study is the first to provide empirical evidence concerning the association between the presence of women on the board of directors and tax aggressiveness.

Board demographic diversity, firm performance and strategic change

2014 ◽  
Vol 37 (12) ◽  
pp. 1110-1136 ◽  
Author(s):  
Daniel Kipkirong Tarus ◽  
Federico Aime
Keyword(s):  
Firm Performance ◽  
Fixed Effects ◽  
Strategic Change ◽  
Secondary Data ◽  
Developed Countries ◽  
Outcome Variable ◽  
Demographic Diversity ◽  
Content Type ◽  
Fixed Effects Regression ◽  
High Level

Purpose – The purpose of this study is to examine the effect of boards’ demographic diversity on firms’ strategic change and the interaction effect of firm performance. Design/methodology/approach – This paper used secondary data derived from publicly listed firms in Kenya during 2002-2010 and analyzed the data using fixed effects regression model to test the effect of board demographic and strategic change, while moderated regression analysis was used to test the moderating effect of firm performance. Findings – The results partially supported board demographic diversity–strategic change hypothesis. In particular, results indicate that age diversity produces less strategic change, while functional diversity is associated with greater levels of strategic change. The moderated regression results do not support our general logic that high firm performance enhances board demographic diversity–strategic change relationship. In effect, the results reveal that at high level of firm performance, board demographic diversity produces less strategic change. Originality/value – Despite few studies that have examined board demographic diversity and firm performance, this paper introduces strategic change as an outcome variable. This paper also explores the moderating role of firm performance in board demographic diversity–strategic change relationship, and finally, the study uses Kenyan dataset which in itself is unique because most governance and strategy research uses data from developed countries.

The financial consequences of human capital disclosure as part of integrated reporting

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Antonio Salvi ◽  
Nicola Raimo ◽  
Felice Petruzzella ◽  
Filippo Vitolla
Keyword(s):  
Human Capital ◽  
Firm Value ◽  
Fixed Effects ◽  
Cost Of Capital ◽  
Positive Impact ◽  
Firm Risk ◽  
Integrated Reporting ◽  
Content Type ◽  
Financial Consequences ◽  
The Cost

PurposeThe purpose of this paper is to analyse the financial consequences of the level of human capital (HC) information disclosed by firms through integrated reports. Specifically, this work examines the effect of HC information on the cost of capital and firm value.Design/methodology/approachA manual content analysis is used to measure the level of HC information contained in integrated reports. A fixed-effects regression model is used to analyse 375 observations (a balanced panel of 125 firms for the period 2017–2019) and test the financial consequences of HC disclosure.FindingsThe empirical outcomes indicate that HC disclosure has a significant and negative effect on the cost of capital and a positive impact on firm value. Our results show that companies can reduce investors' perceived firm risk by improving HC disclosure, leading to a lower cost of capital. Moreover, our findings support the notion that increased levels of HC disclosure are linked to firms' improved access to external financial resources, consequently enhancing firm value.Originality/valueThis study is the first contribution to examine the financial consequences of HC disclosure and is one of the first to examine the level of HC information within integrated reports.

A latent variable analysis of corporate social responsibility and firm value

2018 ◽  
Vol 44 (4) ◽  
pp. 478-494 ◽  
Author(s):  
Boonlert Jitmaneeroj
Keyword(s):  
Firm Value ◽  
Measurement Errors ◽  
Latent Variable ◽  
Fixed Effects ◽  
Latent Variable Model ◽  
Variable Model ◽  
Content Type ◽  
Latent Variable Analysis ◽  
Corporate Social ◽  
Variable Analysis

Purpose Corporate social responsibility (CSR) has several dimensions that are inherently unobservable or measured with errors. Due to measurement errors of CSR proxies, regression analysis seems inappropriate for investigating the relationship between CSR and firm value. Accounting for CSR measurement errors, the purpose of this paper is to use a latent variable analysis to examine whether CSR affects firm value. Design/methodology/approach This study applies a latent variable model that directly takes into account the measurement errors of CSR proxies. Moreover, the inclusion of firm-fixed effects in the model controls for time-invariant unobservable firm-specific characteristics that may drive both CSR and firm value. CSR is measured by environmental, social, and corporate governance activities. Findings Based on data of US firms between 2002 and 2014, this study finds conflicting evidence of a direct association between each CSR proxy and firm value. When all CSR proxies are incorporated into a latent variable model, CSR significantly positively impacts firm value. Therefore, CSR strategies based on a single measure of CSR or the equal weighting of CSR measures tend to underestimate the influence of CSR on firm value. Practical implications Corporate managers should enhance firm value by simultaneously engaging in environmental, social, and corporate governance activities because there is a synergistic effect with firm value. Furthermore, investors who downplay CSR factors in firm valuation can lead to significant errors in making equity investment choices. Originality/value This study presents a novel examination of the price-earnings ratio in the CSR valuation by using the latent variable model with firm-fixed effects.

The impact of ownership structure on corporate tax avoidance with corporate social responsibility as mediating variable

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Anissa Dakhli
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Tax Avoidance ◽  
Institutional Ownership ◽  
Corporate Tax ◽  
Data Set ◽  
Content Type ◽  
Corporate Social ◽  
The Impact ◽  
Practical Implications

Purpose The purpose of this paper is to investigate the direct and indirect relationship between institutional ownership and corporate tax avoidance using corporate social responsibility (CSR) as a mediating variable. Design/methodology/approach This study uses panel data set of 200 French firms listed during the 2007–2018 period. The direct and indirect effects between managerial ownership and tax avoidance were tested by using structural equation model analysis. Findings The results indicate that institutional ownership negatively affects tax avoidance. The greater the proportion of the institutional ownership, the lower the likelihood of tax avoidance usage. From the result of the Sobel test, this study indicated that CSR partially mediates the effect of institutional ownership on corporate tax avoidance. Practical implications The findings have some policy and practical implications that may help regulators in improving the quality of transactions and in achieving more efficient market supervision. They recommend to the government to add regulations and restrictions to the structure of corporate ownership to control corporate tax avoidance in French companies. Originality/value This study extends the existing literature by examining both the direct and indirect effect of institutional ownership on corporate tax avoidance in French companies by including CSR as a mediating variable.

The effects of corporate disclosure on firm value and firm performance: evidence from Turkey

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hüseyin Temiz
Keyword(s):  
Firm Performance ◽  
Firm Value ◽  
Fixed Effects ◽  
Ordinary Least Squares ◽  
Least Square ◽  
Corporate Disclosure ◽  
Content Type ◽  
Regulatory Bodies ◽  
Transparency And Disclosure ◽  
The Cost

Purpose The purpose of this study is to investigate the effects of firms’ disclosure practices on firm value and firm performance. Design/methodology/approach Firms’ disclosure scores were calculated based on unique hand-collected data by using the S&P transparency and disclosure index (S&P TD index). Ordinary least squares with year/firm fixed effects and two-stage least square methods were used to test the hypothesis. Findings It is observed that firms’ disclosure scores have positive and statistically significant effects on firm value. However, firms’ disclosure scores do not have significant effects on firm performance. This result is mostly observed in sub-categories of the index. Practical implications Results show that disclosed information has an impact on firm value. Therefore, standardization and increasing the reliability of this information are necessary for both information users and firms. It is important to standardize the information published by the firms and to increase their reliability by implementing new regulations by regulatory bodies in Turkey. Social implications Firms bear the costs due to their disclosure practices. However, the benefits derived from this situation may be higher than the cost incurred. Hence, it is suggested that firms that are traded in Turkey consider this in the determination of their disclosure policy. Originality/value This is the first study that investigates the effects of firms’ disclosure scores on both firm value and firm performance by using the S&P TD index in the Turkish context.

The effect of audit fees, audit quality and board ownership on tax aggressiveness: evidence from Thailand

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Marziana Madah Marzuki ◽  
Muhammad Syukur Muhammad Al-Amin
Keyword(s):  
Fixed Effects ◽  
Audit Quality ◽  
Good Governance ◽  
Tax Avoidance ◽  
Audit Fees ◽  
Least Square ◽  
Content Type ◽  
Tax Aggressiveness ◽  
Nonaudit Services ◽  
Board Ownership

PurposeThe purpose of this study is to investigate the effect of audit fees, auditors' quality and board ownership on tax aggressiveness in Thailand.Design/methodology/approachThe sample of this study is based on 215 firm-year observations of SET-100 listed companies in Thailand during the 2010–2018 periods. This study employs a panel least square regression with period fixed effects. The study retrieved the corporate governance variables from the downloaded annual reports, whilst the remaining data were collected from the EMIS database.FindingsThis study provides evidence that audit fees reduce tax aggressiveness and board ownership enhance tax aggressiveness among the firms. Nonaudit services provided by auditors impair auditors' independence and lead to higher tax aggressiveness. The result supports the agency theory, which explains that managers and blockholders may enjoy private benefits of control at the expense of other shareholders in the absence of market control. Thus, firms need good governance practices such as incentives paid for the effort of auditors and nonaudit services monitoring to curb such exploitation.Research limitations/implicationsThe results provide implications to the firms and regulators that incentives to the monitoring parties such as auditors can reduce tax aggressiveness among the firms. Nevertheless, higher ownership given to boards as incentives may lead to concentrated ownership and thus lead to the type 2 agency problem, which is between majority and minority shareholders. The result also provides caution to the regulators to monitor the nonaudit services provided by the auditors as it might impair their independence and compromise the tax paid to IRB.Originality/valueThis study is pioneer research discussing tax avoidance in Thailand. The Thai Government has been noticing that tax avoidance is being performed in the country, but academic discussion on this topic had never been elaborated.

How Internal Control Protects Shareholders' Welfare: Evidence from Tax Avoidance in China

2020 ◽  
Vol 19 (2) ◽  
pp. 19-39
Author(s):  
Hsihui Chang ◽  
Xin Dai ◽  
Yurun He ◽  
Maolin Wang
Keyword(s):  
Control Systems ◽  
Internal Control ◽  
Agency Costs ◽  
Tax Avoidance ◽  
Positive Association ◽  
Data Availability ◽  
Corporate Tax ◽  
Controlling Shareholders ◽  
The Public ◽  
Prior Literature

ABSTRACT This paper investigates how effective internal control protects shareholders' welfare in the context of corporate tax avoidance. Prior literature documents a positive association between internal control weakness and low tax avoidance. In this paper, we re-examine this association and complement prior research by finding that the direction of the association between internal control and tax avoidance depends on the level of tax avoidance. Specifically, for firms with low (high) levels of tax avoidance, internal control quality is positively (negatively) associated with tax avoidance. In additional analyses, we further explore how internal control mitigates agency costs for state-owned enterprises and tunneling activities. We show that for state-owned enterprises, which have lower incentives to avoid tax, effective internal control prevents managers from paying more taxes to cater to the controlling shareholders' interests. We also find that the association between tax avoidance and tunneling is reduced by effective internal control systems. Data Availability: Data are available from the public sources cited in the text.

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