Exploring aggressive tax planning dynamics: the impact of investment opportunity sets and free cash-flow surplus

Purpose This study aims to investigate how investment opportunity sets (IOs) and free cash-flow (FCF) surpluses affect aggressive tax planning (ATP). This research focuses on examining the correlation between these factors and delves into how ATP, perceived as a tool for exploiting legal loopholes, plays a central role. Design/methodology/approach This study uses panel data analysis techniques on a sample of 1,248 firm-observations gathered from nonfinancial enterprises in Jordan that are listed in the Amman Stock Exchange (ASE) between the years 2008 and 2019. The Driscoll–Kraay regression model (fixed effect) is enlisted to avoid the inconsistency of the slope across individual units and time period. Findings The findings indicate that the IOs does not affect ATP. However, there is a significant negative effect of FCF surplus on ATP. Furthermore, consistent with positive accounting theory the data reveal that all of these control variables exert a substantial positive influence on ATP. Research limitations/implications This study concentrates on nonfinancial firms listed in the ASE, thereby constraining the applicability of the results to alternative contexts. Nevertheless, the findings of this study enhance comprehension regarding the extent of ATP and bear policy implications for policymakers regarding the structuring of future tax systems aimed at reducing the prevalence of tax avoidance behaviors. Thus, future research should conduct longitudinal studies to capture temporal dynamics. Originality/value This study contributes to the existing literature on ATP by focusing on using the Wilson tax-shelter model as a precise proxy. It fills gaps in prior research by exploring connections between IOs, FCF and ATP. The findings offer novel insights into the dynamics of tax planning strategies and contribute to the broader understanding of tax management practices.

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Publication Details

Journal
Journal of Financial Regulation and Compliance
Published
2024-09-28
DOI
https://doi.org/10.1108/jfrc-05-2024-0097
Primary Topic
Corporate Taxation and Avoidance
Type
article
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article

Exploring aggressive tax planning dynamics: the impact of investment opportunity sets and free cash-flow surplus

Anas Ghazalat
Journal of Financial Regulation and Compliance
Corporate Taxation and Avoidance
article

Exploring aggressive tax planning dynamics: the impact of investment opportunity sets and free cash-flow surplus

Anas Ghazalat
article en

Abstract

Purpose This study aims to investigate how investment opportunity sets (IOs) and free cash-flow (FCF) surpluses affect aggressive tax planning (ATP). This research focuses on examining the correlation between these factors and delves into how ATP, perceived as a tool for exploiting legal loopholes, plays a central role. Design/methodology/approach This study uses panel data analysis techniques on a sample of 1,248 firm-observations gathered from nonfinancial enterprises in Jordan that are listed in the Amman Stock Exchange (ASE) between the years 2008 and 2019. The Driscoll–Kraay regression model (fixed effect) is enlisted to avoid the inconsistency of the slope across individual units and time period. Findings The findings indicate that the IOs does not affect ATP. However, there is a significant negative effect of FCF surplus on ATP. Furthermore, consistent with positive accounting theory the data reveal that all of these control variables exert a substantial positive influence on ATP. Research limitations/implications This study concentrates on nonfinancial firms listed in the ASE, thereby constraining the applicability of the results to alternative contexts. Nevertheless, the findings of this study enhance comprehension regarding the extent of ATP and bear policy implications for policymakers regarding the structuring of future tax systems aimed at reducing the prevalence of tax avoidance behaviors. Thus, future research should conduct longitudinal studies to capture temporal dynamics. Originality/value This study contributes to the existing literature on ATP by focusing on using the Wilson tax-shelter model as a precise proxy. It fills gaps in prior research by exploring connections between IOs, FCF and ATP. The findings offer novel insights into the dynamics of tax planning strategies and contribute to the broader understanding of tax management practices.

Journal of Financial Regulation and ComplianceVol. 32(5)
Arab Open University (JO)
Openalex Percentile: Top 72%
Corporate Taxation and Avoidance
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Exploring aggressive tax planning dynamics: the impact of investment opportunity sets and free cash-flow surplus — Anas Ghazalat · Journal of Financial Regulation and Compliance (2024) | TGRS Research Map | TGRS