Faculty of Economics and Business Administration Publications Database

Opportunities to Divert, Firm Value, and Taxation: Theory and Evidence from European Firms

Krämer, Robert
Volume: 68
Number: 1
Pages: 17 - 47
Month: March
ISSN-Print: 0015-2218
Link External Source: Online Version
Year: 2012
Abstract: We study the relationship between opportunities for managerial diversion, corporate tax system parameters, and the return on shareholder funds. Theoretically, in a simple game between corporate insiders and outsiders, higher costs of diversion increase the return. European firm-level data lend support to these results. Further, in civil-law countries an increase in the corporate tax rate has a positive effect on shareholder value, whereas in common-law countries it has a negative effect.