The Impact of Firm Life cycle on the Corporate Tax Avoidance Strategies

  • Nasir Abbas PhD Scholar, Riphah International University Islamabad, Pakistan
  • Komal Seemab MBA, Department of Business Administration, Foundation University Islamabad
  • Abdul Waheed PhD Scholar, Department of Business Administration, Foundation University Islamabad, Pakistan
  • Shahzad Hussain PhD (Finance), SZABIST Islamabad, Pakistan
Keywords: Firm Life Cycle, Tax Avoidance, Dickinson's Mode, Resource Based Theory

Abstract

The aim of this research is to evaluate the relationship between rm life cycle stages and corporate tax
avoidance. This study has been conducted on the non-nancial sector companies of Pakistan listed on the
Pakistan stock exchange. The sample consists of 100 companies out of 443 total non-nancial companies
over the period of 2008-2015. Tax avoidance has been estimated using two proxies i.e. GAAP_ETR and LETR.
Moreover, rm cycle stages, based on Dickinson's model (2011), have been measured using the cash ow
operations of the company i.e. operating, investing and nancing activities. The empirical ndings are
consistent with the Resource Based Theory (RBT) perspective and indicate that there is a signicant
relationship between rm cycle stages and corporate tax avoidance. Furthermore, Robustness tests show
that rms tend to evade taxes in the introductory, shake-out and decline stages; however, rms are less likely
to engage in tax planning in growth and maturity stages of their rm life cycle. In conclusion, companies are
less incentivized to engage in tax avoidance in their peek stages due to certain cash ows (stable prot
stream) and more motivated to do so near their shaky dawn and impending doom (unstable prot
stream).The results of this thesis have several implications for tax authorities and Government to counter the
menace of tax evasion from the Pakistani Economy by enhancing check and balance on rms in their
subsequent phases of low prots and reduce the ever growing scal decit and black economy.

Published
2018-08-31