TY  - JOUR
AU  - Desai,Mihir A.
AU  - Dharmapala,Dhammika
TI  - Corporate Tax Avoidance and Firm Value
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11241
PY  - 2005
Y2  - April 2005
UR  - http://www.nber.org/papers/w11241
L1  - http://www.nber.org/papers/w11241.pdf
N1  - Author contact info:
Mihir A. Desai
Graduate School of Business Administration
Harvard University
Soldiers Field
Boston, MA 02163
Tel: 617/495-6693
Fax: 617/496-6592
E-Mail: mdesai@hbs.edu

Dhammika Dharmapala
University of Illinois College of Law
504 E. Pennsylvania Avenue
Champaign, IL 61820
E-Mail: dharmap@illinois.edu
AB  - 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.
ER  -