NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Corporate Tax Avoidance and Firm Value

Mihir A. Desai, Dhammika Dharmapala

NBER Working Paper No. 11241
Issued in April 2005
NBER Program(s):   CF   PE

How do investors value managerial actions designed solely to minimize corporate tax obligations? Using a framework in which managers' tax sheltering decisions are related to their ability to divert value, this paper predicts that the effect of tax avoidance on firm value should vary systematically with the strength of firm governance institutions. The empirical results indicate that the average effect of tax avoidance on firm value is not significantly different from zero; however, the effect is positive for well-governed firms as predicted. Coefficient estimates are consistent with an expected life of five years for the devices that generate these tax savings for well-governed firms. Alternative explanations for the dependence of the valuation of the tax avoidance measure on firm governance do not appear to be consistent with the empirical results. The findings indicate that the simple view of corporate tax avoidance as a transfer of resources from the state to shareholders is incomplete, given the agency problems characterizing shareholder-manager relations.

download in pdf format
   (255 K)

email paper

This paper is available as PDF (255 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w11241

Published: Desai, Mihir, and D. Dharmapala. "Corporate Tax Avoidance and Firm Value." The Review of Economics and Statistics. August 2009, Vol. 91, No. 3, Pages 537-546 citation courtesy of

Users who downloaded this paper also downloaded these:
Desai and Dharmapala w10471 Corporate Tax Avoidance and High Powered Incentives
Stiglitz w1868 The General Theory of Tax Avoidance
Slemrod and Yitzhaki w7473 Tax Avoidance, Evasion, and Administration
Desai, Dyck, and Zingales w10978 Theft and Taxes
Desai The Divergence between Book Income and Tax Income
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us