IDEAS home Printed from https://ideas.repec.org/a/ami/journl/v23y2024i2p381-411.html

Corporate Tax Avoidance and Firm Risk: What Role Does Firm Performance Play?

Author

Listed:
  • Fatma Bougacha

  • Mouna Guedrib

    (Faculty of Economics and Management of Sfax, University of Sfax, Tunisia)

Abstract

Research Question- Can firm performance moderate the relationship between tax avoidance and firm risk in the French context? Motivation- Previous studies have investigated the impact of tax avoidance on corporate risk, yet consensus remains elusive. These discrepancies suggest that findings may be influenced by specific company characteristics, such as performance. Guedrib and Bougacha (2024) discovered a negative relationship between tax avoidance and corporate risk using annual tax avoidance as a measure. Our study adopts the approach of Dyreng et al. (2008) by examining a long-term measure to mitigate distortions arising from tax accrual effects and short-term fluctuations. Idea- This study seeks to evaluate the impact of tax avoidance on firm risk and investigate how firm performance might moderate this dynamic. Data- Our research examines 301 observations of French companies listed on the CAC 40 index. We analyze data from 2010 to 2022, collected from 2008, using DATASTREAM database. Tools- This research employs the feasible generalized least squares (FGLS) method. Firm performance is evaluated using both metrics, while tax avoidance is estimated using the long-run cash effective tax rate. Findings- The research indicates that firm performance plays a moderating role in how tax avoidance affects firm risk. Accounting performance coupled with tax avoidance typically decreases firm risk, whereas market performance combined with tax avoidance tends to increase it. Further analysis reaffirms these findings, particularly among firms exhibiting high tax risk. Contribution- This study underscores the importance for investors to consider both firm performance and tax avoidance as interconnected indicators to enhance decision-making processes.

Suggested Citation

  • Fatma Bougacha & Mouna Guedrib, 2024. "Corporate Tax Avoidance and Firm Risk: What Role Does Firm Performance Play?," Accounting and Management Information Systems, Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies, vol. 23(2), pages 381-411, June.
    • Handle: RePEc:ami:journl:v:23:y:2024:i:2:p:381-411
    as

    Download full text from publisher

    File URL: http://online-cig.ase.ro/RePEc/ami/articles/23_2_5.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kirsten A. Cook & William J. Moser & Thomas C. Omer, 2017. "Tax avoidance and ex ante cost of capital," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 44(7-8), pages 1109-1136, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yousra R. Obiedallah & Asmaa Hamdy Abdelaziz Mohamed El Mahdy, 2025. "Accounting conservatism and firm value in Egypt: the mediating role of tax avoidance," Future Business Journal, Springer, vol. 11(1), pages 1-15, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bradley Blaylock & Bradley P. Lawson & Michael A. Mayberry, 2020. "Taxable income, future profitability, and stock returns," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(7-8), pages 858-881, July.
    2. Oshota, Sebil Olalekan, 2024. "Effect of Tax Avoidance on Cost of Capital in Nigeria Sebil Olalekan," African Journal of Economic Review, African Journal of Economic Review, vol. 12(2), June.
    3. Letdin, Mariya & Meegan, Cathryn M. & Romney, Miles A., 2024. "The Parabolic Relationship of Tax Avoidance and Cost of Public Debt," Finance Research Letters, Elsevier, vol. 69(PA).
    4. Folsom, David & Hasan, Md Mahmudul & Zhou, Fuzhao, 2025. "Executive-level internal governance and tax planning," Journal of Contemporary Accounting and Economics, Elsevier, vol. 21(3).
    5. Leon Zolotoy & Don O’Sullivan & Geoffrey P. Martin & Robert M. Wiseman, 2021. "Stakeholder Agency Relationships: CEO Stock Options and Corporate Tax Avoidance," Journal of Management Studies, Wiley Blackwell, vol. 58(3), pages 782-814, May.
    6. Isin, Adnan Anil, 2018. "Tax avoidance and cost of debt: The case for loan-specific risk mitigation and public debt financing," Journal of Corporate Finance, Elsevier, vol. 49(C), pages 344-378.
    7. Herita T. Akamah & Thomas C. Omer & Sydney Qing Shu, 2021. "Financial constraints and future tax outcome volatility," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(3-4), pages 637-665, March.
    8. Liang Xu & Xinyan Yan & Haoyi Yang & Wenqiao Zhang, 2026. "Prosocial CEOs and Corporate Tax Avoidance," Journal of Business Ethics, Springer, vol. 204(2), pages 367-390, March.
    9. Martin Jacob & Kelly Wentland & Scott A. Wentland, 2022. "Real Effects of Tax Uncertainty: Evidence from Firm Capital Investments," Management Science, INFORMS, vol. 68(6), pages 4065-4089, June.
    10. Richardson, Grant & Taylor, Grantley & Obaydin, Ivan, 2020. "Does the use of tax haven subsidiaries by U.S. multinational corporations affect the cost of bank loans?," Journal of Corporate Finance, Elsevier, vol. 64(C).
    11. Imhyeon Kim & Jinsoo Kim & Jeongyeon Kang, 2020. "Company Reputation, Implied Cost of Capital and Tax Avoidance: Evidence from Korea," Sustainability, MDPI, vol. 12(23), pages 1-16, November.
    12. Asiri, Mohammed & Al-Hadi, Ahmed & Taylor, Grantley & Duong, Lien, 2020. "Is corporate tax avoidance associated with investment efficiency?," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    13. Sarhan, Ahmed A. & Elmagrhi, Mohamed H. & Elkhashen, Emad M., 2024. "Corruption prevention practices and tax avoidance: The moderating effect of corporate board characteristics," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 55(C).
    14. Wang, Changrong & Richardson, Grant & Cao, Yanming, 2024. "Long live the walking dead? Corporate tax avoidance and zombie firms in China," The British Accounting Review, Elsevier, vol. 56(3).
    15. Xiangge Wang & Kirsten A. Cook, 2026. "Dual Holders and Corporate Tax Policies," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 66(1), pages 357-391, March.
    16. Juan Pedro Sánchez‐Ballesta & José Yagüe, 2021. "Financial reporting incentives, earnings management, and tax avoidance in SMEs," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(7-8), pages 1404-1433, July.
    17. James Chyz & Erin Henry & Thomas Omer & Biyu Wu, 2023. "The Effect of Significant IPO Firms on Industry Incumbents: Evidence from Tax Planning," Management Science, INFORMS, vol. 69(10), pages 6369-6392, October.
    18. Knaisch, Jonas, 2022. "How to account for tax planning and tax uncertainty in valuation: Separate vs. composite view," arqus Discussion Papers in Quantitative Tax Research 271, arqus - Arbeitskreis Quantitative Steuerlehre.
    19. Kim, Tae-Nyun & Lee, Pil-Seng, 2023. "Product market threats and tax avoidance," International Review of Financial Analysis, Elsevier, vol. 86(C).
    20. Nesbitt, Wayne L. & Outslay, Edmund & Persson, Anh V., 2023. "A reexamination of investors' reaction to tax shelter news: Evidence from the Luxembourg tax leaks," Journal of Accounting and Economics, Elsevier, vol. 75(2).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ami:journl:v:23:y:2024:i:2:p:381-411. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Cristina Tartavulea (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.