Tax Evasion and Firm Value: The Role of Corporate Governance
Tax Evasion and Firm Value: The Role of Corporate Governance
Joosung Jun
Korean Journal of Public Finance, 2011
Abstract
Using publicly listed nonfinancial firm data for the period 1994-2007, this paper shows that corporate governance can be a critical factor in determining the effects of tax avoidance on the firm value. Contrary to conventional wisdom, corporate tax avoidance negatively affected the market value of firm under ‘bad governance’ represented by the dominating presence of the controlling shareholder. Under good governance represented by a higher presence of institutional investors, however, mangers appeared to act in the interests of shareholders. In addition, the investors appeared to consider the permanent component of the difference between book and taxable income, the tax avoidance proxy used in this study, as the main ingredient for rent diversion by owner-managers. These results are robust across various estimation specification.
Key Words: tax avoidance, corporate governance, firm value
Tax Evasion and Firm Value: The Role of Corporate Governance
Joosung Jun
Korean Journal of Public Finance, 2011
Abstract
Using publicly listed nonfinancial firm data for the period 1994-2007, this paper shows that corporate governance can be a critical factor in determining the effects of tax avoidance on the firm value. Contrary to conventional wisdom, corporate tax avoidance negatively affected the market value of firm under ‘bad governance’ represented by the dominating presence of the controlling shareholder. Under good governance represented by a higher presence of institutional investors, however, mangers appeared to act in the interests of shareholders. In addition, the investors appeared to consider the permanent component of the difference between book and taxable income, the tax avoidance proxy used in this study, as the main ingredient for rent diversion by owner-managers. These results are robust across various estimation specification.
Key Words: tax avoidance, corporate governance, firm value