How does tax avoidance affect firm performance and how is this relationship influenced by board diversity?
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2024-07-09
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en
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This thesis examines the relationship between tax avoidance and firm performance, based on return on equity, return on assets and Tobin’s Q, for United Kingdom firms. This thesis furthermore identifies the moderating effect of board diversity on the relationship between tax avoidance and firm performance. Diversity on boards is defined as diversity based on gender and nationality. This study used Panel data analysis to examine the sample consisting of 139 unique UK firms with 624 firm-year observations over the period 2018-2022. Firstly, the results of the study explain that the effect of tax avoidance on firm performances ROE and ROA is significantly negative, as predicted when employing an agency theory approach to corporate tax avoidance. Secondly, the results show that there is no relationship between tax avoidance and firm performance when measured using Tobin’s Q. Finally, the results show that gender and nationality diversity lessens the negative effect of tax avoidance on firm performance. This study contributes to an increasing understanding of tax avoidance, when using an agency theory approach. Practically it may contribute to improve decision making related to tax avoidance by managers and for shareholders.
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Faculteit der Managementwetenschappen