Arbeitspapier
Corporate tax minimization and stock price reactions
Tax minimization strategies may lead to significant tax savings, which could, in turn, increase firm value. However, such strategies are also associated with significant costs, such as expected penalties and planning, agency, and reputation costs. The overall impact of firms' tax minimization strategies on firm value is, therefore, unclear. To investigate whether corporate tax minimization increases firm value, we analyze the stock price reaction to news concerning corporate tax avoidance or evasion. Our hand-collected dataset includes 139 tax news items regarding listed German firms over the period from 2003 to 2014. In contrast to previous research, we explicitly distinguish between news about legal tax minimization (tax avoidance) and illegal tax minimization (tax evasion). We show that stock market responses differ significantly between news items concerning legal and illegal activities. While we find negative abnormal returns for tax evasion news, we find positive abnormal returns for tax avoidance news. Our results do not indicate any reputation effect of legal tax minimization. Conversely, the positive market reaction to tax avoidance news is associated with firms that face high reputation risk.
- Language
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Englisch
- Bibliographic citation
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Series: arqus Discussion Paper ; No. 204
- Classification
-
Wirtschaft
Information and Market Efficiency; Event Studies; Insider Trading
Corporate Finance and Governance: General
Business Taxes and Subsidies including sales and value-added (VAT)
Tax Evasion and Avoidance
- Subject
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tax avoidance
tax evasion
tax aggressiveness
tax risk
market reaction
event study
- Event
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Geistige Schöpfung
- (who)
-
Blaufus, Kay
Möhlmann, Axel
Schwäbe, Alexander
- Event
-
Veröffentlichung
- (who)
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Arbeitskreis Quantitative Steuerlehre (arqus)
- (where)
-
Berlin
- (when)
-
2016
- Handle
- Last update
-
10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Blaufus, Kay
- Möhlmann, Axel
- Schwäbe, Alexander
- Arbeitskreis Quantitative Steuerlehre (arqus)
Time of origin
- 2016
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