How Does Tax Aggressiveness Affect Shareholder Wealth? An Examination Using a Regulatory Transition

Shawn Xu, Wan-Shin (Cindy) Mo () and Jacob Peng ()
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Shawn Xu: College of Business, Department of Accounting, University of Wyoming, 1000 East University Avenue, Laramie, WY 82071, USA
Wan-Shin (Cindy) Mo: College of Business, Department of Finance, Chung Yuan Christian University, 200 Chung Pei Road, Chung Li District, Taoyuan City, Taiwan 32023, R.O.C.
Jacob Peng: Department of Accounting and Taxation, School of Business, Robert Morris University, 6001 University Blvd., Moon Township, PA 15108, USA

The International Journal of Accounting (TIJA), 2020, vol. 55, issue 04, 1-47

Abstract: We examine the relation between tax aggressiveness and firm value. Using a tax enforcement change in Taiwan that limits firms’ abilities to pursue aggressive tax strategies, we document that the relation between tax aggressiveness and firm value becomes more negative after the regulatory change. Further analyses reveal that the negative change is more pronounced for firms that are more likely to be targeted by the stricter tax enforcement. In addition, we do not find strong evidence on the impact of corporate governance in moderating the main relation. Our results seem to be consistent with the argument that potential increases in regulatory costs may outweigh the benefit of the stricter tax enforcement in constraining insiders’ income diversion, intensifying the conflict between aggressive tax positions and shareholder wealth in our research setting.

Keywords: Tax aggressiveness; tax avoidance; tax enforcement; firm value; corporate governance (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1142/S1094406020500158

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