Opportunities to Divert, Firm Value, and Taxation: Theory and Evidence from European Firms
38 Pages Posted: 23 Sep 2011
Date Written: August 12, 2011
We study the relationship between opportunities for managerial diversion, corporate tax system parameters and the return on shareholder funds. Theoretically, in a simple game between corporate insiders and outsiders, higher costs of diversion increase the return. European firm-level data lend support to these results. Further, in civil law countries an increase in the corporate tax rate has a positive impact on shareholder value, whereas in common law countries the corporate tax negatively affects shareholder value.
Keywords: corporate governance, corporate taxation
JEL Classification: G3, H25, H26
Suggested Citation: Suggested Citation