Tax Planning, Corporate Governance and Equity Value
Posted: 11 Jun 2012
Date Written: June 11, 2012
Abstract
Given the estimated scale of tax planning activities by firms and the associated benefits and costs an interesting question is the nature of the relationship between tax planning and firms’ market value. Although traditionally corporate tax planning has been viewed as benefiting shareholders via increased after tax earnings, more recently the underlying motivation for tax planning has been questioned. An information asymmetry between managers and shareholders with respect to tax planning can facilitate managers in acting in their own interests. Using a sample UK quoted firms this study finds a negative relationship between tax planning and firm value which is not moderated by corporate governance mechanisms. The study contributes to the debate of who determines, and benefits from, tax planning conducted by firms and has direct policy relevance for control and assessment of firms and tax authorities’ efforts to control the extent of tax avoidance.
Keywords: Tax planning, tax avoidance, firm value, corporate governance, agency costs
JEL Classification: G14, G30, H20, H32
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