Multinationals’ Tax Evasion: A Financial and Governance Perspective

79 Pages Posted: 20 Mar 2017  

Shumi M. Akhtar

The University of Sydney

Farida Akhtar

Curtin University

Kose John

New York University (NYU) - Department of Finance

Su-Wen Wong

The University of Sydney

Date Written: November 19, 2015

Abstract

This paper examines the corporate tax evasion puzzle from both a financial and governance perspective: one, the impact of tax evasion on a multinational's financial performance and secondly, whether corporate governance levels affect the probability of the multinational committing tax evasion. We specifically address: (i) whether multinationals (MNCs) suffer any adverse short and long-term effects on their financial performance following news that the firm in question has committed, or is suspected of committing, tax evasion and (ii) whether country and corporate level governance has any influence on the likelihood of MNC’s evading tax. In the short-term, we find that share prices drop in the event window around the announcement date. However, we find no evidence that multinationals suffer long-term reputational damage from tax evasion; leaving no impact on firm profitability or value. We also find that country governance levels do not have any significant relationship with the MNC’s likelihood to commit tax evasion nor we find corporate level governance has any consistent prediction power.

Keywords: Tax evasion, multinational corporations, performance, corporate governance, country level governance.

JEL Classification: F3 and G1

Suggested Citation

Akhtar, Shumi M. and Akhtar, Farida and John, Kose and Wong, Su-Wen, Multinationals’ Tax Evasion: A Financial and Governance Perspective (November 19, 2015). Available at SSRN: https://ssrn.com/abstract=2935541 or http://dx.doi.org/10.2139/ssrn.2935541

Shumi M. Akhtar (Contact Author)

The University of Sydney ( email )

University of Sydney Business School
corner of Codrington Street and Darlington Street
Chippendale, NSW 2006
Australia
61290369309 (Phone)

HOME PAGE: http://www.firn.org.au

Farida Akhtar

Curtin University ( email )

Kent Street
Bentley
Perth, WA WA 6102
Australia

Kose John

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0337 (Phone)
212-995-4233 (Fax)

Su-Wen Wong

The University of Sydney

University of Sydney
Sydney, NC NSW 2006
Australia

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