How Does Tax Avoidance Affect a Firm's Investment Inefficiency in Taiwan's Semiconductor Industry?

ABSTRACT This study examines an important issue regarding how tax avoidance affects a firm's investment inefficiency in Taiwan's semiconductor industry. In addition, the dynamic effect of a firm's investment inefficiency and spillover effect of investment inefficiency from competitors are also explored. This study adopts 44 listed firms from 2013 to 2021 and constructs the “competitor‐dependence matrix” to replace the “spatial‐dependence matrix” in the dynamic spatial autoregressive model. According to the difference generalized method of moments estimation, the primary finding of this study is that the tax avoidance has a statistically and significantly positive effect on a firm's investment inefficiency while it is overinvestment, but a negative effect while it is underinvestment. Moreover, the dynamic effect is statistically insignificant, but the spillover effect is statistically and significantly negative.