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The impact of profitability pressure and capital market valuation on tax haven engagement

Author

Listed:
  • Chen, Linda H.
  • Jiang, George J.
  • Wang, Weiwei
  • Zhang, Joseph H.

Abstract

We investigate three key research questions related to firms' engagement in tax haven activities: (1) the relationship between firm profitability pressures and tax haven involvement, (2) how the capital markets price tax haven activities as potential risks, and (3) whether firm profitability pressures moderate the relationship between tax haven involvement and capital market risk perceptions. Analyzing data from 1995 to 2020, we find that firms facing profitability pressure are more likely to engage in tax haven activities. Additionally, tax haven involvement is typically viewed negatively by capital markets, signaling heightened information risk and agency costs. However, under profitability pressures, capital markets assess tax haven activities less unfavorably. These findings highlight the need to better understand the drivers of aggressive tax avoidance strategies.

Suggested Citation

  • Chen, Linda H. & Jiang, George J. & Wang, Weiwei & Zhang, Joseph H., 2025. "The impact of profitability pressure and capital market valuation on tax haven engagement," Advances in accounting, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:advacc:v:68:y:2025:i:c:s0882611024000750
    DOI: 10.1016/j.adiac.2024.100804
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    More about this item

    Keywords

    Tax haven; Tax avoidance; Information risk; Market value;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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