Investment efficiency, tax avoidance, and external audit evidence of European Companies Assawer Elaoud, Anis Jarboui
By: Elaoud, Assawer
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Contributor(s): Jarboui, Anis.
Material type: 
ArticlePublisher: 2021Subject(s): INVERSIONES EMPRESARIALES | EFICIENCIA | ELUSION FISCAL | AUDITORIA FISCAL | INSPECCION TRIBUTARIA | MODELOS ECONOMETRICOS
In:
Journal of Taxation of Investments v. 39, n. 1, Fall 2021, p. 27-48Summary: This article looks at the impact of external audit and tax avoidance behavior on investment problems such as under-investment and over-investment. More specifically, this article adds value to the literature by examining how external audit moderates the relationship between business tax avoidance and investment problems. The authors employ a large sample of European companies listed in the STOXX Europe 600 index over the 2013–2017 period. This sample includes 9 sectors and 17 countries. The regression results show that tax avoidance is significantly negative in terms of investment efficiency and that it increases the over-investment problem. Indeed, when managers forgo investments that produce positive net present value through tax avoidance, companies could be exposed to a problem of over-investment. In addition, the results show that external auditors moderate the behavior of tax avoidance with regard to investment efficiency and over-investment. Audit quality, measured by three proxies, reduces agency costs and improves investment efficiency. These outcomes are robust in relation to other measurements of both investment efficiency and tax avoidance.
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Resumen.
This article looks at the impact of external audit and tax avoidance behavior on investment problems such as under-investment and over-investment. More specifically, this article adds value to the literature by examining how external audit moderates the relationship between business tax avoidance and investment problems. The authors employ a large sample of European companies listed in the STOXX Europe 600 index over the 2013–2017 period. This sample includes 9 sectors and 17 countries. The regression results show that tax avoidance is significantly negative in terms of investment efficiency and that it increases the over-investment problem. Indeed, when managers forgo investments that produce positive net present value through tax avoidance, companies could be exposed to a problem of over-investment. In addition, the results show that external auditors moderate the behavior of tax avoidance with regard to investment efficiency and over-investment. Audit quality, measured by three proxies, reduces agency costs and improves investment efficiency. These outcomes are robust in relation to other measurements of both investment efficiency and tax avoidance.
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