article · Asian Review of Accounting
An investigation into non-financial corporations listed on the Tunisian Stock Exchange between 2008 and 2020 evaluates how corporate tax avoidance and tax risk jointly influence firm value. While tax avoidance generally increases company value, tax risk exerts a negative effect. Crucially, tax risk moderates the positive contribution of tax avoidance. When companies combine tax avoidance with high levels of tax risk, the overall impact on firm value becomes negative, showing that investors discount aggressive, high-risk tax practices. These insights indicate that simply looking at effective tax rates does not provide a complete picture of tax aggressiveness. Corporate decision-makers face financial penalties from the market when pursuing volatile tax schemes, underscoring the need for integrated tax risk management policies and clearer regulatory reporting standards to protect shareholder interests and public revenue.
Aggressive tax practices can undermine corporate value when they introduce significant uncertainty. By showing that investors penalise high-risk tax avoidance, this evidence helps investors evaluate corporate tax planning more accurately, encourages business leaders to adopt formal tax risk management, and provides regulators with a basis to mandate clearer disclosure rules to safeguard minority shareholders and public revenue.
The findings can inform decision-making tools and risk assessment frameworks used by investors, corporate managers, and regulatory bodies in Tunisia. Financial analysts can incorporate tax volatility measures, such as volatile effective tax rates, directly into valuation models to evaluate corporate tax risks. Because this work constitutes an empirical market analysis rather than a direct product development effort, practical implementation sits at the stage of applied guidelines and analytical processes for corporate governance and investment analysis.
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Purpose The purpose of this study is to examine the interactive impact of tax avoidance and tax risk on the firm value. Design/methodology/approach This 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. Findings The 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/implications The 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 implications The 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 implications The 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/value The 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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DOI: 10.1108/ara-03-2022-0052
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