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NTU Management Review Vol. 34 No. 3 Dec. 2024

3. Findings

The regression results suggest that investors negatively value tax risk and positively
value tax avoidance, and tax risk moderates the positive valuation of tax avoidance. These

results indicate that even when tax avoidance levels are identical among firms, investors’
assessments of tax avoidance may diverge based on variations in tax risk. Investors
will look more favorably on companies with stable and less volatile tax planning, as a
more stable and less volatile tax planning strategy facilitates a better understanding of a

company’s prospective cash flows and tax liabilities. Furthermore, the study reveals that
tax avoidance and tax risk maintain a relatively consistent impact on firm value across
different tax systems, albeit with some variations in the magnitude of the impact during
certain periods.

In contrast to prior literature, which predominantly focuses on tax avoidance in
isolation, this study underscores the importance of simultaneously considering the
interplay between tax risk and tax avoidance. Additionally, our result implies that past
research examining the relationship between tax avoidance and firm value may have

overestimated the marginal impact of tax avoidance by not accounting for the moderating
influence of tax risk.

4. Implications

The findings of this study suggest that, despite investors’ positive evaluation of tax
avoidance, these investors also prefer tax planning with lower risk. Therefore, a singular
focus on minimizing the overall tax burden without considering tax risk may not be

optimal for a company’s operations. Managers should strike a balance between tax
avoidance and tax risk by adopting tax avoidance strategies that align with the overall
risk tolerance of the company. This approach not only meets investor expectations but also
contributes to the enhancement of firm value.
Furthermore, the empirical results emphasize the significance of effective tax risk

management. Companies should establish robust tax governance practices and proactively
prepare for potential fluctuations in economic environments and tax system uncertainties.
This proactive approach can mitigate the losses caused by risks and enhance a company’s

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