Robert Krämer, Vilen Lipatov

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

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FinanzArchiv (FA)

Jahrgang 68 () / Heft 1, S. 17-47 (31)

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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.

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