Tax aggressiveness and business risk: how does firm performance affect their relationship?

Objective: To analyze the relationship between tax aggressiveness and business risk and determine whether firm performance moderates this relationship. Method: The study analyzed Brazilian companies listed on B3 (Brasil, Bolsa, Balcão) between 2010 and 2023, using a nonprobabilistic sample comprising companies with available data that met the selection criteria. The final sample comprised 215 companies and 1,267 observations in an unbalanced panel. Statistical analysis was performed using multiple linear regression models estimated by ordinary least squares (OLS) with panel fixed effects and Driscoll-Kraay robust standard errors. Results and contributions: The results indicate that lower ETR and Cash ETR values, interpreted as indicating greater tax aggressiveness, are associated with higher levels of business risk. Evidence that firm performance moderates this relationship depending on the tax aggressiveness proxy used: in regressions using ETR, ROA strengthens the association between lower effective tax rates and greater risk, while BTM weakens this association, however, in regressions using Cash ETR, the terms were not statistically significant. An additional analysis of the pre-pandemic period revealed a reversal in coefficient signs, a finding that should be interpreted as exploratory evidence of temporal sensitivity. This analysis does not constitute an event study. The study contributes by showing, in the Brazilian context, that the relationship between tax aggressiveness and business risk depends on the tax aggressiveness proxy and firm performance measure used.