Abstract
We examine the relation between tax aggressiveness and firm value. Using a tax enforcement change in Taiwan that limits firms’ abilities to pursue aggressive tax strategies, we document that the relation between tax aggressiveness and firm value becomes more negative after the regulatory change. Further analyses reveal that the negative change is more pronounced for firms that are more likely to be targeted by the stricter tax enforcement. In addition, we do not find strong evidence on the impact of corporate governance in moderating the main relation. Our results seem to be consistent with the argument that potential increases in regulatory costs may outweigh the benefit of the stricter tax enforcement in constraining insiders’ income diversion, intensifying the conflict between aggressive tax positions and shareholder wealth in our research setting.
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