56 Pages Posted: 15 Mar 2017
Date Written: March 1, 2017
I exploit a quasi-natural experiment provided by a tax reform in Korea to examine the effect of corporate tax avoidance on firm value, and the interaction between the corporate tax system and corporate governance. First, I find that investors perceive tax avoidance to be, on average, a value enhancing activity. Second, the market response to the tax reform is consistent both with the notion that higher tax rates can worsen corporate governance outcomes by increasing the return from income diversion, and that stricter tax enforcement can actually increase firm value. The results are robust to alternative specifications and explanations.
Keywords: Tax Avoidance, Tax Enforcement, Corporate Governance, Corporate Tax
JEL Classification: G14, G32, G34, G38, H26
Suggested Citation: Suggested Citation
Semaan, Samer R., Tax Avoidance, Income Diversion, and Shareholder Value: Evidence from a Quasi-Natural Experiment (March 1, 2017). Available at SSRN: https://ssrn.com/abstract=2931109 or http://dx.doi.org/10.2139/ssrn.2931109