Firm valuation and the uncertainty of future tax avoidance

Arbeitspapier

The paper studies the effect of uncertainty in tax avoidance on firm value. We first show in a clean surplus valuation model that expected tax rates interact with expectations about future profitability. This paper builds and tests a valuation framework that incorporates two outcome dimensions of corporate tax avoidance strategies: the stability and the level of expected tax rates. We develop a tax planning score that captures these two dimensions. The measure improves the prediction of future tax avoidance. We finally show that the tax planning score strengthens the effect of pre-tax earnings on firm value. Firms with effective and persistent tax planning have a stronger effect of pre-tax earnings on firm value while firms with poor tax planning or volatile effective tax rates receive a discount on their earnings.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: arqus Discussion Paper ; No. 149

Classification and Topics

• Classification: Wirtschaft ; Accounting ; Asset Pricing; Trading Volume; Bond Interest Rates ; Business Taxes and Subsidies including sales and value-added (VAT)
• Subject: firm valuation ; tax avoidance ; tax uncertainty

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Jacob, Martin ; Schütt, Harm
• Event: Veröffentlichung
• (who): Arbeitskreis Quantitative Steuerlehre (arqus)
• (where): Berlin
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/86156
• Last update: 10.03.2025, 11:42 AM CET