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Do Tax Risk and Tax Avoidance Affect Firm Value?

competitiveness.

5. Contribution

This paper contributes in several ways: First, it responds to the call made by Wilde and
Wilson (2018) to broaden the dimensions of tax research by incorporating tax risk. This
study is not only the first research in Taiwan to investigate the relationship between tax risk

and firm value but also the first to employ firm-level data under income tax integration,
thereby extending the external validity of prior research. The empirical findings shed light
on how investors perceive tax risk, thus enhancing the understanding of the determinants
of firm value in Taiwan. This paper also provides empirical evidence on the economic
consequences of tax risk and its impact on investor evaluations.

Second, while some literature has suggested that companies do not fully utilize tax
avoidance strategies to reduce their tax burdens, the underlying reasons have remained
inconclusive. The empirical results presented in this paper suggest that a company’s tax
planning should consider not only the benefits of tax avoidance but also the associated

risks. An excessive pursuit of tax avoidance, while yielding significant tax benefits, can
elevate risks, which may not be conducive to a company’s overall operations.
Third, in contrast to prior literature that directly examines the effects of tax risk
and tax avoidance, this paper examines how different tax systems affect tax risk and tax

avoidance over different periods. The empirical results reveal variations in the effects
during certain periods, highlighting the importance of taking into account the tax systems
when analyzing this topic. Meanwhile, the results also imply that when investigating this
issue in different countries, the empirical results may diverge due to disparities in tax

systems.

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