ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

Tax Avoidance and the Value of Cash Holdings

  • Lee, Joonil Department of Accounting and Taxation, Kyung Hee University

Asian Tax Journal Vol. 19 No. 1 (2018), pp. 143-172

Abstract

Tax avoidance activities could enhance firm value by increasing after－tax cash flow. However, it also could have a negative effect on firm value because the means for tax avoidance provides an environment for managers to pursue their own benefits instead of increasing firm value. This study examines the relationship between the marginal value of cash holdings and the tax avoidance for KOSDAQ listed companies during 2001 to 2014. Cash is the vulnerable resource for managers to use for their private benefits or invested in negative NPV project, Especially when a company is under high information asymmetry, cash is likely to be used for the manager's private interest. This paper provides evidence that the tax avoidance is positively related to the stock return, However, as the level of tax avoidance increases, the marginal value of the cash holdings decreases. This results shows the non－tax cost accompanied the tax avoidance. The negative association between tax avoidance and the marginal value of cash holdings is significant in the environment where the agency problem is large. These results provide additional evidence for previous studies that have presented mixed results on the impact of tax avoidance on firm value.

Keywords

  • Tax avoidance
  • market value of cash holdings
  • Non－tax cost
  • Agency cost

Related Articles

ATJ
E-SubmissionSitemapContact Us RSS

Asian Tax Journal

Address : 3F, KICPA Bldg., 12 Chungjeongro 7-gil, Seodaemun-gu, Seoul 03736, Republic of Korea

Editor-in-Chief : Prof. Wanyong Kim Editorial Office : Dept. of Finance, Accounting & Taxation, Hanyang Cyber University, 220 Wangsimni-ro, Seongdong-gu, Seoul, Republic of Korea Tel : +82-2-2290-0418 / +82-10-8664-1117 E-mail : taxresearch2@hanmail.net