Corporate Tax Avoidance and Firm Performance: Empirical Evidence from Pakistan.

Abstract

This study examines the impact of corporate tax avoidance on firm performance. The focus of this study is Pakistan because of its unique reform experience. Our study focuses on the tax avoidance practices of the non-financial Pakistani firms. The sample size of the study is 80 non-financial firms (based on market share capitalization) for 12 years from the period 2009 to 2020. Data for the variables under study is gathered from yearly audited accounts and official websites of concerned companies. A fixed effect method is used for panel data. Return on asset, return on equity, and Tobin's Q have all been employed as indicators of firm’s performance. The findings indicate that there is a link between corporate tax avoidance and firm performance. The findings indicate that profitability and business performance have a favorable and significant link. It suggests that the stock market's complex nature provides 'possibilities' for management to use tax avoidance as a tool to engage in activities aimed at obtaining benefits from earing manipulation by reducing shareholder value. This research may be expanded to look into the tax avoidance strategies of financial firms, with an emphasis on how firm size affects firm performance.