Revista Internacional de Economía y Ciencias de la Gestión

Investigation on Corporate Tax Avoidance through GMM: A Fresh insight on PSE listed companies

Abstract

Imran Shahzade*

Purpose: The purpose of this study to investigate corporate tax avoidance behaviors which increase the company value in Pakistan. Few studies take over empirical conduct for tax avoidance represents wealth transfer from government to companies that enhance the company value. This empirical work argues that contrast to developed countries, tax avoidance does not necessarily add value to opaque Pakistan companies relevant to transparent counterparts due to high level of agency costs.

Design/methodology/approach: First, the author of the study investigates the complete effect of tax avoidance regarding listed companies of Pakistan stock exchange in which the value of the companies increased that is illegal activity. Second, the author examines the relative opaque counterparts in which tax avoidance increase the value of the transparent companies. It is increased the uncertainty for the revenue of the government and decreases the tax collection amount. Third, the author used different perspectives to measure the corporate tax avoidance which is creating burden for the government of Pakistan. The time period 2012 to 2021 with fixed effect regression model indicates that there is a relationship between tax avoidance and value of the listed companies.

Findings: This study found that corporate tax avoidance reduces the tax burden that maximizes the shareholder’s wealth. There is a relationship exist between tax avoidance and environmental uncertainty which does influence on reduction of tax payments to the government of the Pakistan.

Practical implications: The empirical work of Sikkas (2010, 2013) views that organized hypocrisy act that is committed by the listed companies in China in where companies are engaged for aggressive tax avoidance whose irresponsible and illegal activities for the avoidance of tax. Consequences indicted that listed companies of the Pakistan stock exchange and investors regarding financial tax conformity has effects on the avoidance of tax which is an illegal activity. It is reacting badly regarding financial considerations for the economy of Pakistan.

Originality/value: The consequences of the study indicate that tax avoidance is a crucial factor that influence the economy of Pakistan badly in which managers of the listed companies are gaining the encroached for their self-serving. Moreover, investors in Pakistan stock exchange are downplaying the significance regarding avoidance of tax with having the corporate information transparency that pertain the negative tone for the economy of Pakistan.