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Article
Publication date: 1 December 2021

Taruntej Singh Arora and Suveera Gill

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…

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.

Details

Managerial Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 12 October 2021

Marziana Madah Marzuki and Muhammad Syukur Muhammad Al-Amin

The purpose of this study is to investigate the effect of audit fees, auditors' quality and board ownership on tax aggressiveness in Thailand.

Abstract

Purpose

The purpose of this study is to investigate the effect of audit fees, auditors' quality and board ownership on tax aggressiveness in Thailand.

Design/methodology/approach

The 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.

Findings

This 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/implications

The 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/value

This 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.

Details

Asian Review of Accounting, vol. 29 no. 5
Type: Research Article
ISSN: 1321-7348

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Article
Publication date: 13 May 2021

Astrid Rudyanto, Sidharta Utama, Dwi Martani and Desi Adhariani

This paper aims to investigate the roles of corruption and tax allocation inefficiency in moderating the effect of tax aggressiveness on sustainable welfare.

Abstract

Purpose

This paper aims to investigate the roles of corruption and tax allocation inefficiency in moderating the effect of tax aggressiveness on sustainable welfare.

Design/methodology/approach

This research uses a fixed-effect multiple regression analysis for 55,438 firm-year observations covering 22 countries from 2007 to 2017.

Findings

For less (more) tax-aggressive observations, corruption and tax allocation inefficiency strengthen the negative (positive) effect of tax aggressiveness on sustainable welfare. The results are in line with public choice and functionalism theories that suggest that private investments can increase welfare when governments are dysfunctional.

Practical implications

This paper shows that the effect of tax aggressiveness on sustainable welfare depends on tax aggressiveness, corruption and tax allocation inefficiency.

Social implications

This paper implies that governments should reduce their corruption levels and increase tax allocation efficiency because private investments are ineffective in the long run.

Originality/value

Because of increasing awareness of sustainability issue, sustainable welfare is considered more relevant than traditional welfare. Hence, empirical studies on the effect of tax aggressiveness on sustainable welfare are crucial. This paper adds the literature by combining public choice and functionalism theories to investigate the moderating roles of corruption and tax allocation inefficiency in this issue.

Details

Social Responsibility Journal, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1747-1117

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Article
Publication date: 15 February 2021

Sawssan Jbir, Souhir Neifar and Yosra Makni Fourati

This paper aims to examine the impact of CEO (chief executive officer) compensation and CEO attributes on the level of tax aggressiveness of French companies.

Abstract

Purpose

This paper aims to examine the impact of CEO (chief executive officer) compensation and CEO attributes on the level of tax aggressiveness of French companies.

Design/methodology/approach

The sample comprises 180 firm-year observations of 40 companies listed on the CAC 40 during the period ranging from 2008 to 2018. For the purpose of overcoming the problems of heteroscedasticity and autocorrelation, the authors apply the generalized least square panel regression.

Findings

This study’s results corroborate the importance of CEO compensation and CEO attributes as determinants of tax aggressiveness. In addition, the authors come up with the fact that CEO compensation has a negative effect on tax aggressiveness, and that older CEOs and CEOs with accounting expertise are negatively linked with tax aggressiveness. The authors also find out that there is a positive relationship between the CEO tenure and tax aggressiveness. Moreover, the authors report that foreign CEOs are more likely to engage in tax aggressiveness practices than local CEOs.

Research limitations/implications

The unavailability of all annual reports and the use of only one proxy to measure tax aggressiveness present limitations. This study shows significant implications for shareholders, regulators and researchers. As a matter of fact, shareholders will observe the effect of appointing a foreign CEO on the tax aggressiveness level. This study may also provide regulators with new ideas regarding the role of the CEO and its impact on aggressive decision-making. And it brings forth new insight for researchers through adding a foreign CEO as a new determinant of tax aggressiveness.

Originality/value

According to the authors’ knowledge, this study is the first to provide empirical evidence regarding the effect of both CEO compensation and CEO attributes on tax aggressiveness. It also looks into the impact of a foreign CEO on tax aggressiveness.

Details

Journal of Financial Crime, vol. 28 no. 4
Type: Research Article
ISSN: 1359-0790

Keywords

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Article
Publication date: 4 February 2021

Carlos E. Jiménez-Angueira, Emeka Nwaeze and Sung-Jin Park

Prior studies document a positive relation between stock prices and tax-related contingent liability, unrecognized tax benefits (UTBs) and interpret the finding as…

Abstract

Purpose

Prior studies document a positive relation between stock prices and tax-related contingent liability, unrecognized tax benefits (UTBs) and interpret the finding as evidence that investors reward tax aggressiveness. The purpose of this paper is to explore the nature of this puzzle finding by considering a link between UTBs and financial reporting strategy and propose that financial reporting conservatism may explain the positive association between UTBs and stock prices.

Design/methodology/approach

To estimate the incremental valuation weights on UTBs, the authors employ the Ohlson (1995) valuation model and regress stock prices on UTBs and its interactions with the proxies for financial reporting conservatism and tax aggressiveness. Further, the authors adopt a UTB estimation model to decompose its balance into the predicted and unpredicted components.

Findings

The authors find that the reporting conservatism has a positive effect on the market valuation of UTBs. The authors also find some evidence that tax aggressiveness increases the valuation weight of UTBs. When UTBs are decomposed into predicted and unpredicted components, the authors find that the effect of financial reporting conservatism is more pronounced for the market valuation of predicted UTBs. Collectively, the evidence suggests that conservative financial reporting is a major driver of the positive valuation of UTBs and that tax aggressiveness plays a less significant role in investors' valuation decisions.

Originality/value

While prior studies focus on how UTBs are associated with stock prices, this paper is the first attempt to explain why UTBs are positively valued by investors.

Details

Asian Review of Accounting, vol. 29 no. 2
Type: Research Article
ISSN: 1321-7348

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Article
Publication date: 5 February 2021

Taher HAMZA and Elhem ZAATIR

This study aims to examine the impact of corporate tax aggressiveness on future stock price crash. It also tests the impact of corporate tax aggressivness in predicting…

Abstract

Purpose

This study aims to examine the impact of corporate tax aggressiveness on future stock price crash. It also tests the impact of corporate tax aggressivness in predicting stock price crash for a two-year forecast window.

Design/methodology/approach

The study sample consisted of 1,169 firm-years observations. The multivariate analysis uses three measures of stock price crash risk, as a dependent variable. The key variable is tax aggressiveness lagged by one period (one year) as all independent variables. As a robustness check, this paper uses alternate measures of earning management and a longer forecast window (two years) to predict stock price crash risk.

Findings

Tax aggressiveness activity is positively related to a firm-specific future stock price crash. Moreover, corporate tax aggressiveness predicts stock price crash risk for a long forecast window (two years). The findings are robust to a number of checks and have several policy implications.

Practical implications

The cost of continuing to accumulate bad news will be greater than the cost of revealing them. Thus, board of directors should encourage disclosure in order to reveal private news and then, to increase the amount of firm-specific information in returns. Another point is that tax aggressiveness behavior implies a risk to be perceived by the market as socially irresponsible, and may harm the firm reputation. This fact leads, in terms of portfolio management, to deter investment in firm-equity. Therefore, Investors should be cautious about the different risks of corporate tax aggressiveness.

Social implications

The accounting system in France, as in most European countries, relies upon codified rules and government requirement. Thus, our results provide some evidence of the effectiveness of the French laws and regulations in preventing indirectly earnings management from affecting stock price crash risk.

Originality/value

French companies are among the heavily taxed in Europe which makes France a particularly suitable context for studying tax aggressiveness issues. To the best of our knowledge, this study is the first in the french context, that document a signifcant and positive relation between tax aggressiveness and future crash risk. It focuses on the important role of corporate tax planning as a means of withholding bad news and its consequences in inflating stock prices.

Details

Journal of Financial Reporting and Accounting, vol. 19 no. 1
Type: Research Article
ISSN: 1985-2517

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Article
Publication date: 29 October 2020

Ahmed Boussaidi and Mounira Hamed-Sidhom

This study sheds light on the determinants related to the corporate board of directors and the firms’ ownership nature of tax aggressiveness strategies of Tunisian listed…

Abstract

Purpose

This study sheds light on the determinants related to the corporate board of directors and the firms’ ownership nature of tax aggressiveness strategies of Tunisian listed firms and what could be their effect on its level in a postrevolution context.

Design/methodology/approach

Our research considers only nonfinancial firms listed in the Tunisian stock exchange during the 2011–2017 period. It is based on unbalanced panel data.

Findings

Findings suggest that women presence on the corporate board, CEO duality, the managerial and institutional ownership regularize significantly the level and the management's behavior of engagement in tax aggressiveness practices and reduce the firm’s overall risks of its consequences in terms of tax positions stability.

Research limitations/implications

Our investigation considers only nonfinancial firms to avoid noisy results and for the significant differences between accounting standards within financial and nonfinancial firms, besides sample homogeneity and comparability considerations.

Practical implications

This study provides evidence that some governance mechanisms, even reasonably dedicated to consider the risk of tax aggressiveness and to prevent its consequences, have a paradoxical effect and amplify the tax aggressiveness’ level rather than defending the firm’s viability and its financial stability. It offers signals to managers about specific governance attributes that strengthen and/or control the extent of tax aggressive strategies.

Social implications

This research gives a particular road map for society, investors and practitioners to depict the firms’ level of tax aggressiveness and especially to understand its attributes related to the corporate board of directors and the ownership's nature through evidences from a postrevolution context.

Originality/value

Our research contributes to prior literature by examining the effect of corporate board characteristics and different ownership natures on the extent of tax aggressiveness during and after the revolution period in Tunisia and confirms and infers some prior findings of tax aggressive determinants in underdevelopment context.

Details

EuroMed Journal of Business, vol. 16 no. 4
Type: Research Article
ISSN: 1450-2194

Keywords

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Article
Publication date: 11 September 2017

Effiezal Aswadi Abdul Wahab, Akmalia M. Ariff, Marziana Madah Marzuki and Zuraidah Mohd Sanusi

The purpose of this paper is to examine the relationship between political connections and corporate tax aggressiveness in Malaysia. In addition, this paper investigates…

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3135

Abstract

Purpose

The purpose of this paper is to examine the relationship between political connections and corporate tax aggressiveness in Malaysia. In addition, this paper investigates the relationship between corporate governance variables and corporate tax aggressiveness. Next, the study investigates the mitigating role of corporate governance in the relationship between political connections and corporate tax aggressiveness.

Design/methodology/approach

The sample of this study is based on 2,538 firm-year observations during the 2000-2009 periods. This study employs a panel least square regression with both period and industry fixed effects. The study retrieved the corporate governance variables from the downloaded annual reports, whilst the remaining data were collected from Compustat Global.

Findings

This study finds that politically connected firms are more tax aggressive than non-connected firms. Furthermore, the study finds that large board size decreases the likelihood of tax aggressiveness and a non-linear relationship exists between institutional ownership and tax aggressiveness suggesting increase in monitoring as the ownership increases. However, the study finds no evidence to suggest that corporate governance mitigates the influence of political connections in promoting tax aggressiveness behavior. The findings suggest that the impact of political connections could outweigh the benefits of changes in corporate governance in Malaysia.

Research limitations/implications

The data are not recent, but it reflects a rather longitudinal research period.

Originality/value

This paper extends the literature of tax research in Malaysia which is in its’ infancy stage. Furthermore, it investigates the role of political connections in tax-planning research.

Details

Asian Review of Accounting, vol. 25 no. 3
Type: Research Article
ISSN: 1321-7348

Keywords

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Article
Publication date: 16 November 2015

Liangliang Wang

The purpose of this paper is to investigate the association between corporate tax aggressiveness and cash holdings and that between corporate tax aggressiveness and the…

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2566

Abstract

Purpose

The purpose of this paper is to investigate the association between corporate tax aggressiveness and cash holdings and that between corporate tax aggressiveness and the value of cash. Further, this study explores the impact of the tax enforcement level on the above associations.

Design/methodology/approach

Under a Chinese special institutional background, this study constructs tax aggressiveness and tax enforcement measures. On this basis, using a sample of Chinese A-share listed companies over the period from 1990 to 2010, this study empirically tests the association between tax enforcement, corporate tax aggressiveness, and cash holdings.

Findings

By empirically testing with Chinese listed companies as the sample, this paper finds the following: with the increase in the tax avoidance level, the precautionary incentives of cash, and the level of financial constraint likewise increase, which will make the level of firm cash savings increase. Meanwhile, although tax avoidance will induce lower transparency and higher agency costs, the marginal value of the cash held by the more aggressive firms is higher due to the higher market competition effect of the cash. Additional tests suggest that, the tax enforcement level can weaken the effect of tax avoidance on the transparency and agency problem; however, because the tax enforcement level can also increase the tax risk of the firm, the positive relation between firm’s tax avoidance and cash savings is strengthened correspondingly. On the value of cash holdings, the tax enforcement level can also make the marginal value of tax aggressive firms higher.

Originality/value

First, this paper provides new evidence on the determinants of firm’s cash holdings from the perspective of cash savings. Second, this paper examines the association between Chinese firm’s tax aggressiveness and the value of cash, which not only provides evidence for the local tax literature but also has reference value for the foreign literature. Third, this paper has reference value for research on the association between corporate tax avoidance activities and other operating decisions. Finally, this paper not only provides new evidence on the association between tax enforcement and corporate governance, but also extends the prior literature on the association between corporate tax aggressiveness and cash holdings.

Details

China Finance Review International, vol. 5 no. 4
Type: Research Article
ISSN: 2044-1398

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Article
Publication date: 14 June 2019

Nirmala Devi Mohanadas, Abdullah Sallehhuddin Abdullah Salim and Lim Kwee Pheng

This study aims to examine how corporate social responsibility (CSR) performance and corporate tax aggressiveness relate in Malaysia, an emerging economy in Southeast…

Abstract

Purpose

This study aims to examine how corporate social responsibility (CSR) performance and corporate tax aggressiveness relate in Malaysia, an emerging economy in Southeast Asia. It also seeks to analyse how CSR performance in community, environment, marketplace and workplace themes relate to the tax aggressiveness of listed companies in this country.

Design/methodology/approach

This study analyses 182 companies listed in the Main Market of Bursa Malaysia from 2010 to 2012 using fixed-effects panel regression and ordinary least square regression. It uses current effective tax rate as a proxy for corporate tax aggressiveness and measures CSR performance using specially developed CSR performance disclosure index.

Findings

This study finds no statistical support that CSR performance is related to corporate tax aggressiveness in Malaysia. Similarly, there are no statistically significant relationships between environment-related and marketplace-related CSR performance and corporate tax aggressiveness. Nevertheless, community-related CSR performance has significant negative relationship with corporate tax aggressiveness. Workplace-related CSR performance meanwhile has significant positive relationship with corporate tax aggressiveness.

Originality/value

This study expands the current literature's focus on developed economies by examining the relationship between CSR and corporate tax aggressiveness in the setting of an emerging Asian economy, i.e. Malaysia. It is also the first empirical study focussing on this relationship among Malaysian listed companies.

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