Does corporate tax avoidance explain firm performance? Evidence from an emerging economy

Nguyen Vinh Khuong,Thai Hong Thuy Khanh,Phung Anh Thu,Nguyen Thanh Liem,Collins G Ntim

doi:10.1080/23311975.2020.1780101

Abstract

Corporate tax avoidance is an act aiming at reducing tax amount liable to the government, which is expected to raise firm value. However, agency theory postulates that opportunistic managers can lower tax liabilities through the arrangement of complex transactions, enabling them to shirk or pursue own interests. Therefore, the need to examine the link between corporate tax avoidance and firm performance is evident, yet there has not been any research on this in the context of Vietnam, a country plagued with tax-avoiding cases. We are the first to examine the empirical link using a sample of Vietnamese listed firms over the period from 2010 to 2016, using a wide-ranging set of performance and tax-sheltering indicators. Overall, the results indicate a mixed relationship between corporate tax avoidance and firm performance in Vietnam.

Highlights

Corporate tax contributes to economic development and this is an aspect of corporate social responsibility; firms could avoid tax to retain extra profits (Chen & Tsai, 2018; OECD, 2013)
return on total assets (ROA), return on equity (ROE) and TOBINQ are negatively correlated with Current effective tax rate (ETR) and book-tax difference (BTD)
According to Desai and Dharmapala (2009), more research on developing countries should be conducted to attain more insight into the impact of corporate tax avoidance. In response to this call, this research is the first of its kind to provide empirical evidence on the impact of corporate tax avoidance on firm performance in Vietnam, which should enrich the literature in the context of developing countries

Summary

Introduction

Corporate tax contributes to economic development and this is an aspect of corporate social responsibility; firms could avoid tax to retain extra profits (Chen & Tsai, 2018; OECD, 2013). Tax avoidance is considered as a tactic to transfer wealth from government to corporations, which should efficiently enhance firm value. Tax avoidance has its own costs, including the implementation cost, reputa tional damage and punishments from the state if uncovered (Chen et al, 2014). It should be, the firm’s decision to avail itself of tax avoidance as a result of the balancing between the benefits and disadvantages associated with this strategy

Objectives

Results

Conclusion