Tax complexity and firm value

Anna-Sophie Braun, Reinald Koch and Caren Sureth

No 299, arqus Discussion Papers in Quantitative Tax Research from arqus - Arbeitskreis Quantitative Steuerlehre

Abstract: This study examines the effect of tax complexity on the market value of publicly traded firms. Using firm-level measures of tax complexity, we find that a one standard deviation increase in tax complexity-comparable in magnitude to the rise following the U.S. Tax Cuts and Jobs Act-is associated with a 2.6% decline in Tobin's Q. The effect is particularly pronounced for complexity arising from anti-avoidance regulations and post-filing procedures. The negative valuation effect is more substantial for firms with limited opportunities for international profit shifting, weak governance, or low internal information quality. Further analyses reveal that tax system complexity is associated with a reduced growth potential of firms and less R&D and thus negative real responses that go beyond negative investment effects. Overall, our findings provide novel evidence of the economic costs of tax complexity and contribute to the debate on the design of efficient and equitable tax systems.

Keywords: tax complexity; tax avoidance; firm value; tax code complexity; tax framework complexity; cost of complexity (search for similar items in EconPapers)
JEL-codes: H25 H26 H32 M12 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-acc, nep-cfn, nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:arqudp:323938

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