The Effect of Tax Shelters on Enterprise Value: A Study of European Firms

This research constitutes an analysis of the relationship of firm valuation and tax sheltering components. The main objective of this study is to determine if the value of firms is influenced by corporate tax aggressiveness. As a secondary objective, this study will explore the effect of corporate governance within the dynamic of tax aggressiveness. In pursuance of the stated objectives, this study implements firm-level observations to explore the relationship of enterprise value and the components of tax shelters. The empirical study incorporated panel data, including metrics of valuation, tax reporting and financial reporting. The sample of the study comprises of 1,101 non-financial firms in the European over the years 2007 through 2018, resulting in 13,212 observations. The results of the regression suggest a decrease of value in firms without rigorous policies of corporate governance. On other hand, an increase of value in firms with rigorous corporate governance policies. Additionally, the results of this research found a positive association of firm valuation and records based on the judgement of managers, such as: Discretionary Accruals and Contingent Tax Liability Reserve.