Does corporate tax avoidance explain firm performance? Evidence from an emerging economy

Abstract

Corporate tax avoidance is an act aiming at reducing tax amount liable to the government, which is expected to raise firm value. However, agency theory postulates that opportunistic managers can lower tax liabilities through the arrangement of complex transactions, enabling them to shirk or pursue own interests. Therefore, the need to examine the link between corporate tax avoidance and firm performance is evident, yet there has not been any research on this in the context of Vietnam, a country plagued with tax-avoiding cases. We are the first to examine the empirical link using a sample of Vietnamese listed firms over the period from 2010 to 2016, using a wide-ranging set of performance and taxsheltering indicators. Overall, the results indicate a mixed relationship between corporate tax avoidance and firm performance in Vietnam.

Earnings Management, Board Composition and Earnings Persistence in Emerging Market

“…Currently, both exchanges have around 735 firms listed, although there are a few new ones. Financial, insurance, and investment firms are always treated as independent study samples due to their distinct business features [74]. Following the removal of the aforementioned samples, the author then eliminates firms from the final sample that have incomplete data or are missing too much.…”

Nexus of Tax Avoidance and Firm Value in Pakistan: Moderating Role of Board Independence

“…They described CTA as "all transactions that can affect a firm's explicit tax liability". Literature studies have revealed that CTA has an association with firm value and various authors examined this association in different contexts (Desai & Dharmapala, 2009;Chen et al, 2014;Dyreng et al, 2016;Zhang et al, 2017;Khuong et al, 2020;Minh Ha et al, 2021;Hasan et al,2021).…”

“…Hasan et al (2021) also found a positive relationship between CTA and FV in high OC firms. In contrast, extensive empirical evidence has been accumulated in the literature to support the notion that CTA has a negative impact on company performance (Khuong et al, 2020). Some of the basic reasons for this negative relationship include non-financial costs attached with CTA activities like reputation cost, managerial rent extraction, and information asymmetry Cook et al, 2017).…”

“…The governments around the world are aware of this economic issue, but tackling this problem is not straightforward (Sayidah & Assagaf, 2019). So, it is crucial to investigate the firms' CTA behavior as it affects not only the firm itself but also the society (Khuong et al, 2020;Minh Ha et al, 2021).…”

“…Thus, in high concentrated firms, the management can use additional resources generated from CTA for their own benefits. Therefore, it is proposed that the existence of BI will reduce the rent extraction behavior of the management, which will also reduce the negative association of CTA on FV (Khuong, 2020).…”