CORPORATE TAX AVOIDANCE AND FIRM FINANCIAL CHARACTERISTICS: EVIDENCE
Keywords:
Corporate TaxAvoidance, Financial Characteristics, Effective Tax Rate, Public Firms, Panel Data AnalysisAbstract
Corporate tax avoidance has become one of the issues of importance in the financial and accounting literature due to itsimplication on the government revenue and corporate governance and financial transparency. This article discusses therelationship thatexistsbetweenthefirm financial characteristicsandcorporate tax evasionamongthepublicly listedcompanies.Usingfirm levelfinancialstatementdata,thestudyexaminestherelationshipbetweencorporatetaxavoidanceandkeyfinancialcharacteristics,includingbusinesssize,profitability,leverage,capitalintensity,andoperating cash flow, based on the effective tax rate.The data on publicly available financial datasets is analyzed with thehelp of panel data (in terms of observing firm-years).The results indicate that corporate tax reactions heavily depend onfinancial characteristics of companies. Lower effective tax rate is more tendentious in large and more profitable firms,which means that they have the opportunity to implement tax planning measures. Effective tax rates also have a negativerelationship with capital intensity and operating cash flow, implying that the companies with higher investments in fixedassetsandthepresenceofthird-partycashcreationmaybeofferedtax-relateddeductionsandprospectsoffinancialplanning.On the other hand, there is a positive association between leverage and effective tax rates, indicating that debt-based businesses need not be concerned about interest tax shields rather than the kind of severe tax evasion. Overall, theresults show how internal financial position affects business taxation methods, and they may be helpful to regulators and legislators who want to increase corporate tax accountability and transparency.
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