Exploring aggressive tax planning dynamics: the impact of investment opportunity sets and free cash-flow surplus
Journal of Financial Regulation and Compliance
ISSN: 1358-1988
Article publication date: 1 October 2024
Issue publication date: 18 November 2024
Abstract
Purpose
This study aims to investigate how investment opportunity sets (IOs) and free cash-flow (FCF) surpluses affect aggressive tax planning (ATP). This research focuses on examining the correlation between these factors and delves into how ATP, perceived as a tool for exploiting legal loopholes, plays a central role.
Design/methodology/approach
This study uses panel data analysis techniques on a sample of 1,248 firm-observations gathered from nonfinancial enterprises in Jordan that are listed in the Amman Stock Exchange (ASE) between the years 2008 and 2019. The Driscoll–Kraay regression model (fixed effect) is enlisted to avoid the inconsistency of the slope across individual units and time period.
Findings
The findings indicate that the IOs does not affect ATP. However, there is a significant negative effect of FCF surplus on ATP. Furthermore, consistent with positive accounting theory the data reveal that all of these control variables exert a substantial positive influence on ATP.
Research limitations/implications
This study concentrates on nonfinancial firms listed in the ASE, thereby constraining the applicability of the results to alternative contexts. Nevertheless, the findings of this study enhance comprehension regarding the extent of ATP and bear policy implications for policymakers regarding the structuring of future tax systems aimed at reducing the prevalence of tax avoidance behaviors. Thus, future research should conduct longitudinal studies to capture temporal dynamics.
Originality/value
This study contributes to the existing literature on ATP by focusing on using the Wilson tax-shelter model as a precise proxy. It fills gaps in prior research by exploring connections between IOs, FCF and ATP. The findings offer novel insights into the dynamics of tax planning strategies and contribute to the broader understanding of tax management practices.
Keywords
Acknowledgements
The author acknowledges support from Arab Open University.
Funding: This research did not receive any specific grant from funding agencies in the public, commercial or not-for-profit sectors.
Conflict of interest statement: The author “Dr Anas Ghazalat” declares that there are no conflicts of interest regarding the research presented in this manuscript titled “Exploring Aggressive Tax Planning Dynamics: The Impact of Investment Opportunity Sets and Free Cash Flow Surplus” for consideration in the Journal of Financial Regulation and Compliance. The author confirms that this work is original and has not been published elsewhere, nor is it currently under consideration for publication in any other journal. The author has contributed significantly to the study, and there are no financial or personal relationships with individuals or organizations that could influence the results or interpretation of the findings.
Citation
Ghazalat, A. (2024), "Exploring aggressive tax planning dynamics: the impact of investment opportunity sets and free cash-flow surplus", Journal of Financial Regulation and Compliance, Vol. 32 No. 5, pp. 665-683. https://doi.org/10.1108/JFRC-05-2024-0097
Publisher
:Emerald Publishing Limited
Copyright © 2024, Emerald Publishing Limited