Tax Risk, Corporate Governance, and the Valuation of Tax Avoidance Across Philippine Firms: How Do Investors Value Corporate Tax Avoidance?

Added Title

DLSU-AKI Policy Briefs Volume VII, No. 18

Authors

Christine E. Ang, De La Salle University, Manila
Shawn Luther S. Chan, De La Salle University, ManilaFollow
Sean Ellison G. Sow, De La Salle University, ManilaFollow
Siegwald K. Yap, De La Salle University, ManilaFollow
Madeleine B. Estabillo, De La Salle University, Manila
Anne Go, De La Salle University, Manila
Angelo A. Unite, De La Salle University, ManilaFollow

Document Type

Policy Brief

Publication Date

9-2022

Place of Publication

DLSU-Angelo King Institute, Room 223, LS building, 2401 Taft Avenue, Manila 0922

Abstract

Tax avoidance has traditionally been thought to enhance firm value because it generates cash savings for reinvestment or distribution to shareholders. More recent literature, however, suggests that tax avoidance valuation may not be so simple. Desai and Dharmapala (2009) introduced the “agency perspective” on tax avoidance, arguing that investors consider the risk of tax avoidance as opening opportunities for managers to extract rents from their firms. Positive tax avoidance value would therefore be conditional on good corporate governance quality. Drake et al. (2017) introduced yet another dimension—tax risk—to the valuation of tax avoidance, arguing that tax avoidance that comes with less variability in tax outcomes (i.e., comes with lower tax risk) should be preferred to those that come with more because investors prefer stable earnings over risky earnings. This policy brief discusses our findings on how public investors in the Philippines value corporate tax avoidance in the contexts of tax risk and corporate governance quality, and policies that can be implemented to enhance firm transparency, increase tax revenues, and raise firm valuations.

html

Recommended Citation

Ang, C. E., Chan, S. S., Sow, S. G., Yap, S. K., Estabillo, M. B., Go, A., & Unite, A. A. (2022). Tax Risk, Corporate Governance, and the Valuation of Tax Avoidance Across Philippine Firms: How Do Investors Value Corporate Tax Avoidance?. Retrieved from https://animorepository.dlsu.edu.ph/res_aki/90

Disciplines

Taxation | Tax Law

Keywords

Philippines; tax; tax avoidance; tax policies

Upload File

wf_yes