Tax Planning and Firm Value: A Review of Literature

Abstract

This paper articulates extant literature that is related to tax planning and firm value with a view to identifying gaps for further extensive empirical consideration. Companies are always looking for means to reduce their corporate tax liability, and this has led to some high-level corporate fraud involving tax evasion in both developed and developing countries. This paper, therefore, presents a review of extant literature on tax planning and firm value.The methodology adopted is a desktop study that is based on deductions from the literature reviewed. The paper identified gaps that require hardcore empirical investigation to reduce the inconsistencies observed in the results of the literature reviewed.

Firm Value and Entity Choice in Closely Held Business Organizations: Do Taxes Play a Role?

“…The influence of income tax on firm value has frequently been examined in the literature (Desai and Dharmapala 2009;Cloyd, Mills, and Weaver 2003;Swenson 1999). The relationship is anchored in two theories: the traditional theory and the theory of agency (Ilaboya, Izevbekhai, and Ohiokha 2016). The traditional theory posits that firm value is positively related to cash flows and that lower taxes result in higher cash flows leading to higher firm value.…”

Tax Aggressiveness, Corporate Governance and Audit Fees: A Study of Listed Firms in Nigeria

“…However, a more all-inclusive meaning is found in Lisowsky et al (2010), in which they presented tax aggressiveness as activities close to the end of a continuum of tax avoidance actions that range from legal tax planning to investments in rather illegal tax shelters. Tax aggressive actions are viewed as a veritable investment for firms and shareholders as it can be used to reduce the tax liabilities and improve revenue, but authors including Ilaboya, Izevbekhai and Ohiokha (2016) and Chen et al (2010) stated that investors may not support tax planning policies because of the likely future costs to the firm. Different measures of corporate tax aggressiveness have been used in the previous literature (Lee, Dobiyanski, & Minton, 2015).…”

“…The final group focuses on other measures of tax aggressiveness such as tax savings, unrecognised tax benefits and tax shelter estimates (Lee et al, 2015;Salihu et al, 2013). Tax savings is the difference between statutory tax rate and effective tax rate (Ilaboya, Izevbekhai, & Ohiokha, 2016). In Nigeria, statutory rate is 30% for companies.…”

The Influence of Earnings Management and Tax Planning on Firm Value with Audit Quality as Moderating Variable

“…Audit Quality, Tax Planning and Firm Value Profit which is one measurement of the increase firm value will be reduced by the high corporate tax expense, then tax planning is done to minimize it. Utilizing gray areas that are not explainde in tax regulations and implementing strategies in selecting companies expenses or revenue that can reduce taxable income is part of tax planning (Budi, 2016: 45;Illaboya et al, 2016), but with the expired period of tax collection for the 5 years, companies must be prepared for tax audits and prepare add of payments for tax penalties and these view can reduce firm value (Wahab & Holland, 2012;Ariff & Hashim, 2014).…”

“…Tax planning is another way to manage to high corporate profits and get the good firm value in the public (Yorke et al, 2016;Pradnyana & Noviari, 2017;Anggoro & Septiani, 2015;Appolos N. et al, 2016;Nugroho & Agustia, 2017), these activities focus on the calculation and the minimization of income tax (Dhaliwal et al, 2004;Illaboya et al, 2016;Ayers, 2009) and included in the companies' financial planning (Ogundajo & Onakoya, 2016 ). The Government considers tax planning as a fraud, but in reality even though it has the aim to minimize the tax expense, not all actions included in the tax planning is contrary with tax regulation.…”