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Tax complexity and firm value

Author

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  • Braun, Anna-Sophie
  • Koch, Reinald
  • Sureth, Caren

Abstract

This study examines the effect of tax complexity on the market value of publicly traded firms. Using firm-level measures of tax complexity, we find that a one standard deviation increase in tax complexity-comparable in magnitude to the rise following the U.S. Tax Cuts and Jobs Act-is associated with a 2.6% decline in Tobin's Q. The effect is particularly pronounced for complexity arising from anti-avoidance regulations and post-filing procedures. The negative valuation effect is more substantial for firms with limited opportunities for international profit shifting, weak governance, or low internal information quality. Further analyses reveal that tax system complexity is associated with a reduced growth potential of firms and less R&D and thus negative real responses that go beyond negative investment effects. Overall, our findings provide novel evidence of the economic costs of tax complexity and contribute to the debate on the design of efficient and equitable tax systems.

Suggested Citation

  • Braun, Anna-Sophie & Koch, Reinald & Sureth, Caren, 2025. "Tax complexity and firm value," arqus Discussion Papers in Quantitative Tax Research 299, arqus - Arbeitskreis Quantitative Steuerlehre.
    • Handle: RePEc:zbw:arqudp:323938
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    References listed on IDEAS

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    1. Gallemore, John & Labro, Eva, 2015. "The importance of the internal information environment for tax avoidance," Journal of Accounting and Economics, Elsevier, vol. 60(1), pages 149-167.
    2. Amberger, Harald & Gallemore, John & Wilde, Jaron, 2025. "Corporate tax system complexity and investment sensitivity to tax policy changes," arqus Discussion Papers in Quantitative Tax Research 300, arqus - Arbeitskreis Quantitative Steuerlehre.
    3. Bustos, Sebastian & Pomeranz, Dina & Suárez Serrato, Juan Carlos & Vila-Belda, José & Zucman, Gabriel, 2022. "The Race Between Tax Enforcement and Tax Planning: Evidence From a Natural Experiment in Chile," CEPR Discussion Papers 17347, C.E.P.R. Discussion Papers.
    4. Martina Lawless, 2013. "Do Complicated Tax Systems Prevent Foreign Direct Investment?," Economica, London School of Economics and Political Science, vol. 80(317), pages 1-22, January.
    5. Aija Rusina, 2020. "Name and shame? Evidence from the European Union tax haven blacklist," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(6), pages 1364-1424, December.
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    Keywords

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    JEL classification:

    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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