MARKET PERFORMANCE AND CORPORATE TAX AVOIDANCE: EMPIRICAL EVIDENCE FROM PANEL DATA ANALYSIS
DOI:
https://doi.org/10.35631/AIJBES.829135Keywords:
Dividend Payout Ratio, Earnings Per Share, Fixed-Effects Panel Model, Market Performance, Tax AvoidanceAbstract
The current study investigates the connection between market performance and corporate tax avoidance using two important indicators of market performance which are Dividend Payout Ratio (DPR) and Earnings Per Share (EPS). Prior studies often focus on overall profitability rather than simultaneously analysing dividend policy and market performance. The study employed fixed effects panel regression model using data from 193 listed companies comprising 579 firm-year observations. Corporate tax avoidance is measured using log tax avoidance metric (logtaxavoid), while market performance is measured using Dividend Payout Ratio (DPR) and Earnings Per Share (EPS1). Furthermore, this study considers some control variables such as Return on Assets (ROA), firm size (LOG_TA), Net Profit Margin (R_NPM), Current Ratio (R_CR) and Financial Leverage (R_LEV). The empirical results indicate that Dividend Payout Ratio (DPR) is positively associated with Corporate Tax Avoidance (CTA) at 10% significance level which supports Hypothesis H1a. This indicates that higher cash dividend payouts are associated with increased tax avoidance. On the other hand, Earnings Per Share (EPS) has a negative but statistically insignificant association with tax avoidance and cannot be used to support Hypothesis H1b. Tax avoidance shows positive and significant relationship with ROA while NPM and Leverage showed negative association with tax avoidance for the control variables. This study contributes to the tax literature by providing empirical evidence on market performance indicators and how it affects tax planning. This study offers tax authorities a key diagnostic indicator by establishing high dividend payout ratios as a warning sign for tax avoidance. For investors and market analysts, these findings warn them that cash distributions may rely on tax-sheltering rather than operational growth. Finally, it provides corporate decision makers and governance authorities with actionable insights on aligning dividend policy with transparent and sustainable tax compliance.
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