Unrecognized tax benefit and its impact on firms’ financial activities: A longitudinal analysis

Ren, Yi; Hsieh, Chialing

doi:10.1002/jcaf.22506

Cited by 2 publications

(2 citation statements)

References 32 publications

(69 reference statements)

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“…FIN 48, which is applicable for the year beginning after December 15, 2006, standardizes the method of accounting for recognition and measurement of uncertain tax benefits (UTBs). It requires companies to disclose UTBs for uncertain tax positions (UTPs) claimed on tax returns that are not permitted to be recognized in financial statements (Ren and Hsieh, 2021). Guenther et al (2019) state that the evidence on the usefulness of UTB reserves as a measure of tax uncertainty is mixed.…”

Section: Discussionmentioning

confidence: 99%

“…Some studies have relied on tax risk disclosures or publicly-available information on tax reserve to measure this risk. Indeed, American studies are based on the new requirements in terms of accounting for tax risk (FIN 48) [3] to measure it (Guenther et al, 2017;Dyreng et al, 2019;Ren and Hsieh, 2021). Guedrib et al (2015) have carried out an earlier study in the Tunisian context on the impact of internal governance mechanisms on tax risk.…”

Section: Regression Models and Definitions Of Variablesmentioning

confidence: 99%

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The interactive impact of tax avoidance and tax risk on the firm value: new evidence in the Tunisian context

Guedrib

Marouani

2023

ARA

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PurposeThe purpose of this study is to examine the interactive impact of tax avoidance and tax risk on the firm value.Design/methodology/approachThis study covers 290 observations on non-financial corporations listed on the Tunisian Stock Exchange for the period ranging from 2008 to 2020, using the multiple linear regression technique.FindingsThe results show that tax avoidance positively affects the firm value while tax risk has a negative influence on the company value. More importantly, tax risk moderates the positive impact of tax avoidance on the firm value. Accordingly, tax avoidance must be considered in conjunction with tax risk when studying the effect on the firm value. The findings of additional analyses indicate that when tax avoidance is associated with a high level of tax risk, it negatively affects the firm value. Thus, investors negatively rate the high-risk tax avoidance.Research limitations/implicationsThe major limitation of this study is that it focuses only on Tunisian listed companies since their financial statements are publicly available. Although the sample is relatively small due to the problem of data availability, it is satisfactory owing to the twelve-year sampling period (from 2008 to 2020). Research implications- The results obtained are of great interest to researchers as they should be more careful in simply using effective tax rates as a measure of risky or aggressive tax avoidance.Practical implicationsThe findings may signal the need for Tunisian firm managers to consider spillovers when adopting risky tax avoidance strategies and to implement a tax risk management policy within the firm. They are also substantial for Tunisian regulators to create requirements for reporting risky tax avoidance practices in the company annual reports to protect the investors’ rights and the society interest in general. The results are also useful for the investors who would like to make good decisions with respect to tax planning strategies. It is not enough to rely on the Effective Tax Rate (ETR) to judge whether or not tax planning is risky. Volatile ETRs, as a proxy of the tax risk, can be useful for them in decision-making.Social implicationsThe results also highlight that risky tax avoidance decreases the firm value, and thus confirm the negative repercussions that such behavior can have not only on the firm, but also on the society in general, as the corporate tax contributes to covering the State public expenditure. Hence, it is considered a general concern.Originality/valueThe present study differs from others in the existing literature. In fact, it examines the joint effect of tax avoidance and tax risk on the firm value for Tunisian listed companies which are characterized by the predominance of agency conflicts between major shareholders and minor ones. Therefore, the authors seek to investigate if small shareholders can penalize risky tax avoidance practices by decreasing the firm value.

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Section: Discussionmentioning

confidence: 99%

Section: Regression Models and Definitions Of Variablesmentioning

confidence: 99%

The interactive impact of tax avoidance and tax risk on the firm value: new evidence in the Tunisian context

Guedrib

Marouani

2023

ARA

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Investigating tax risk’s influence on tax avoidance and debt costs: evidence from France

Guedrib,

Hamdi

2024

JFC

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Purpose This paper aims to examine the impact of tax avoidance on the cost of debt. It also investigates the effect of tax risk on the relationship between tax avoidance and the cost of debt. Design/methodology/approach Two hypotheses are tested on a sample of nonfinancial French firms listed in the société des Bources Françaises 120 index from 2010 to 2022 using the feasible generalized least squares. To ensure the robustness of the findings, the authors changed the measures of tax avoidance and tax risk and used instrumental variable regression to effectively address concerns related to endogeneity. Additional analysis is conducted to examine if the relationship between tax avoidance and the cost of debt varies based on the magnitude of tax risk. Findings The authors found that tax avoidance negatively affects the cost of debt. However, when tax avoidance is associated with a high risk, it impacts positively the cost of debt. Practical implications This study’s findings are relevant to firms, creditors and French lawmakers. Creditors must make their decision to grant credit based simultaneously on proxies of tax avoidance and tax risk. Managers must effectively manage tax risks to protect their financial decisions, urging French policymakers to implement new regulations on corporate tax risk management. Originality/value To the best of the authors’ knowledge, this study is the first to have investigated the joint impact of tax avoidance and tax risk on the cost of debt in the French context.

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Unrecognized tax benefit and its impact on firms’ financial activities: A longitudinal analysis

Cited by 2 publications

References 32 publications

The interactive impact of tax avoidance and tax risk on the firm value: new evidence in the Tunisian context

The interactive impact of tax avoidance and tax risk on the firm value: new evidence in the Tunisian context

Investigating tax risk’s influence on tax avoidance and debt costs: evidence from France

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