Tax Avoidance, Income Diversion, and Shareholder Value: Evidence from a Quasi-Natural Experiment

56 Pages Posted: 15 Mar 2017  

Samer R. Semaan

Purdue University - Krannert School of Management

Date Written: March 1, 2017

Abstract

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

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

Samer Ryan Semaan (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

HOME PAGE: http://https://sites.google.com/site/samerryansemaan/

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