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

Taruntej Singh Arora (University Business School, Panjab University, Chandigarh, India)
Suveera Gill (University Business School, Panjab University, Chandigarh, India)

Managerial Finance

ISSN: 0307-4358

Article publication date: 1 December 2021

Issue publication date: 1 February 2022

1036

Abstract

Purpose

There 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/approach

The 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.

Findings

The 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/value

The 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.

Keywords

Citation

Arora, T.S. and Gill, S. (2022), "Impact of corporate tax aggressiveness on firm value: evidence from India", Managerial Finance, Vol. 48 No. 2, pp. 313-333. https://doi.org/10.1108/MF-01-2021-0033

Publisher

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Emerald Publishing Limited

Copyright © 2021, Emerald Publishing Limited

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