Corporate tax avoidance and firm value: Evidence from Taiwan

Abstract

Corporate tax avoidance practice has gathered a certain attention from researchers in recent years with the advent of corporate social responsibility and the need for firms and managers to find ways to maximize firm value while using more sustainable practices. In this study, using data from 2009 to 2019, we investigate the relationship between firm value and its determinants, but more importantly the correlation and causal relationship between effective tax rate (ETR) and firm value (Tobin’s Q). We used a Pooled OLS, fixed effects and random effects and found that ETR is negatively correlated with firm value. We also found debt, size and return on equity to be negatively correlated with firm value, while cash dividend paid and return on assets are not positively correlated with Tobin’s Q. Furthermore, we use Dumitrescu & Hurlin (2012) Granger non-causality test and Juodis, Karavias and Sarafidis (2021) Granger non-causality test to assess the causal relationship between ETR and Tobin’s Q; the results suggest that ETR does Granger-cause firm value.