Tax evasion, firm’s value and governance: evidence from Tunisian Stock Exchange
| DOI | https://doi.org/10.1108/JFC-02-2020-0023 |
| Date | 14 June 2020 |
| Pages | 781-799 |
| Published date | 14 June 2020 |
| Author | Olfa Nafti,Ines Kateb,Oumaima Masghouni |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
Tax evasion, firm’s value and
governance: evidence from
Tunisian Stock Exchange
Olfa Nafti
Department of Accounting, University of Manouba, Manouba, Tunisia
Ines Kateb
Department of Accounting, Umm Al-Qura University, Makkah Al Mukkaramah,
Saudi Arabia and Department of Accounting, University of Manouba,
Manouba, Tunisia, and
Oumaima Masghouni
Department of Accounting, University of Manouba, Manouba, Tunisia
Abstract
Purpose –The purpose of this study is to analyzethe relationship between tax evasion and firm’s value
while determining the moderating role of family management and the ownership’s concentration in this
relationship.
Design/methodology/approach –The empirical study employs a Panel Data setof 34 firms listed on
the Tunisian Stock Exchange (TSE) forthe period 2007 to 2014. Regression analysis is used to estimate the
relationshipsproposed in the hypotheses.
Findings –The results show that tax evasion has no direct effect on a firm’s value. This study highlightedthe
presence of a moderating effect of family management on the relationship between tax evasion and firm’svalue.
However, no moderating effectof the concentration of property on the mentioned relationship was detected.
Originality/value –This study representsa first empirical essay focusing on the relationship between tax
evasion and firm’s value.Furthermore, it analyzes the moderating effect of some aspects of governance,such
as family managementand ownership’s structure, on this relationshipin a Tunisian context.
Keywords Tax evasion, Firm’s value, Family management, Ownership’s concentration
Paper type Research paper
1. Introduction
Tax evasion has received considerable attention in recent years both in practice and
academic research. The study of Thomsen and Watrin (2018) focusing on observing
American and European companies’behavior shows that behavior, with regard to tax
evasion, does not change over time. Developingcountries are the first victims of this large-
scale tax evasion. In addition, the recent United Nations University’sstudy has argued that
the poorer a country, the more companies are encouraged to diverttheir profits to countries
providing tax incentivemeasures (Landier and Plantin, 2017).
At present, International Monetary Fund’s studies show that developing countries are
three times more vulnerable than developed and rich countries regarding the possible
negative effects of tax rulesand practices (Akcigit et al., 2016).
Desai and Dharmapala (2009a) conclude that the tax evasion’s effects on firm’s value
depends on corporate governance. They showed that the overall effect of tax avoidance is
Tax evasion
781
Journalof Financial Crime
Vol.27 No. 3, 2020
pp. 781-799
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-02-2020-0023
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insignificant. This effectbecame significant and positive for companies with good corporate
governance than ungovernedor undergoverned ones.
Kovermann and Velte (2019) show that corporate governance institutions have not only
the potential to increasetax evasion, making companies more profitable,but also to limit tax
evasion to a level in which risksarising from it do not outweigh the benefits.
According to the same line of reasoning, Kovermann and Wendt (2019) confirmed that
for large unlisted companies, family firms avoid more taxes than non-family ones. The
authors add that tax evasionincreases with family ownership’s percentage, and it correlates
with the number of shareholders.
Wilson (2009) argues that corporate governance is an important mediating factor in the
relationship between tax shelter and creating shareholder’s wealth. The author finds that
active tax shelter firms with strong corporategovernance exhibit positive abnormal returns.
Moreover, Koester (2011) confirmed that governance structure moderates the relationship
between tax evasionand firm’s value (Abdul Wahab and Holland, 2012).
The research of Blaufus et al. (2019) highlights the presenceof a significant relationship
between negative abnormal returns and information on tax evasion. However, it confirms
the presence of a positive relationship between the reaction of stock prices and legal tax
planning, in particularwhen the tax risk is low.
Taylor et al. (2019) confirm that inefficient workforce investment is a determinant of
companies’tax evasion.
Leung et al. (2019) find that the implementation of the GAAR on January 2008 has
reduced tax avoidance. It shouldbe the consequence of the new and stringent tax legislation
and the consolidation of the Chinese tax law. The authorsadd that the implementation of the
GAAR significantly decreases the effect of engaging a Big Four auditor and directors with
tax expertise in deterring tax avoidance; moreover, it has moderated the effects of and
substituted for theseparticular monitoring and disciplining mechanisms.
Our study represents a first empirical essay focusing on the relationship between tax
evasion and firm’s value. Furthermore, it analyzes the moderating effect ofsome aspects of
governance, such as family managementand ownership’s structure, on this relationship in a
Tunisian context.
To our knowledge, no study has attemptedto examine this sort of a relationship. Most of
the research carried out in Tunisia is limited to studying the relationship between tax
evasion and some of firm’s characteristics such as size, ownership structure and corporate
debts (Bouaziz Daoud and Ali Omri, 2013;Boussaidi and Sidhom, 2015). In addition, after
the Tunisian revolution of 2011, the rate of tax evasion has been very high; this prompted
tax authorities to initiate a second major reform since the independence in 2013. The tax
reform project aimed at restructuringthe current tax system and making it more profitable,
simpler and fairer(Bouzeïene, 2017).
Therefore, the objective of our study is to analyze the relationship between tax evasion
and firm’s value and the moderating role of family management and the ownership’s
concentrationon this relationship.
To achieve this objective, we analyzed a sample of companies listed on the Tunisian
Stock Exchange (TSE) for the years 2007 to 2014, making the sum of 272 observations per
firm/year.
Our results confirm that tax evasion has no direct effect on the firm’s value. We also
found that family management has a moderating effect on the relationship between tax
evasion and firm’s value. However,no moderating effect of the ownership’s concentration on
the mentioned relationshipwas detected.
JFC
27,3
782
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