Tax behavior and resource allocation in family-owned firms

Authors

  • Mhamed Ben Slimane Higher Institute of Management of Sousse, Tunisia
  • Habiba Ladhari Higher Institute of Management of Sousse, Tunisia

Keywords:

Tax avoidance, Investment inefficiency, Family ownership, information asymmetry.

Abstract

The purpose of this study is to examine and better understand the effect of tax avoidance practices on investment inefficiency and to highlight the effect of family ownership as an effective governance mechanism that reduces information asymmetry. The sample covers 3,732 firm-year observations in France from 2009 to 2020. We use panel data regression based on the FGLS regression to examine the effect of tax avoidance on investment inefficiency. The results show that tax avoidance activities leads to exacerbate the level of information asymmetry and consequently inefficient investment behavior. More precisely, we found that tax avoidance is positively associated with underinvestment and we found that there is no significant link between tax avoidance and overinvestment. More importantly, the results show that family ownership mitigates the relationship between corporate tax avoidance and investment inefficiency. This study builds upon prior research by investigating how family ownership influences the link between tax avoidance and investment inefficiency. It delves into how family ownership acts as a governance mechanism to mitigate information asymmetry, safeguard non-financial benefits, and perpetuate the family legacy.

References

Abid, S., & Dammak, S. (2022). Corporate social responsibility and tax avoidance: the case of French companies. Journal of Financial Reporting and Accounting, 20(3/4), 618-638. https://doi.org/10.1108/JFRA-04-2020-0119

Habib, A., & Azim, I. (2008). Corporate governance and the value‐relevance of accounting information: Evidence from Australia. Accounting Research Journal, 21(2), 167-194. https://doi.org/10.1108/10309610810905944

Aksar, M., Hassan, S., Kayani, M., Khan, S., & Ahmed, T. (2022). Cash holding and investment efficiency nexus for financially distressed firms: The moderating role of corporate governance. Management Science Letters, 12(1), 67-74.

Al-Dhamari, R., Al-Wesabi, H., Farooque, O. A., Tabash, M. I., & El Refae, G. A. (2023). Does investment committee mitigate the risk of financial distress in GCC? The role of investment inefficiency. International Journal of Accounting & Information Management, 31(2), 321-354. https://doi.org/10.1108/IJAIM-08-2022-0180.

Ali, A., Chen, T. Y., & Radhakrishnan, S. (2007). Corporate disclosures by family firms. Journal of accounting and economics, 44(1-2), 238-286. https://doi.org/10.1016/j.jacceco.2007.01.006

Anderson, R. C., Duru, A., & Reeb, D. M. (2012). Investment policy in family controlled firms. Journal of banking & finance, 36(6), 1744-1758. https://doi.org/10.1016/j.jbankfin.2012.01.018

Armstrong, C. S., Blouin, J. L., & Larcker, D. F. (2012). The incentives for tax planning. Journal of accounting and economics, 53(1-2), 391-411. https://doi.org/10.1016/j.jacceco.2011.04.001

Asiri, M., Al-Hadi, A., Taylor, G., & Duong, L. (2020). Is corporate tax avoidance associated with investment efficiency?. The North American Journal of Economics and Finance, 52, 101143. https://doi.org/10.1016/j.najef.2020.101143

Attig, N., Boubakri, N., El Ghoul, S., & Guedhami, O. (2016). The global financial crisis, family control, and dividend policy. Financial management, 45(2), 291-313. https://doi.org/10.1111/fima.12115

Attig, N., Fong, W. M., Gadhoum, Y., & Lang, L. H. (2006). Effects of large shareholding on information asymmetry and stock liquidity. Journal of Banking & Finance, 30(10), 2875-2892. https://doi.org/10.1016/j.jbankfin.2005.12.002

Bailing, J., & Rui, J. (2018). The impact of tax avoidance on enterprise investment efficiency. Journal of Discrete Mathematical Sciences and Cryptography, 21(6), 1293-1298. https://doi.org/10.1080/09720529.2018.1526404

Balakrishnan, K., Blouin, J. L., & Guay, W. R. (2019). Tax aggressiveness and corporate transparency. The accounting review, 94(1), 45-69. https://doi.org/10.2308/accr-52130

Beldi, A., Damak-Ayadi, S., & Elleuch, A. (2014). Voluntary Disclosure Regarding Intellectual Capital: Differences between Family and Non-Family Firms in France. Revue de l’Entrepreneuriat/Review of Entrepreneurship, 13(3), 99-121. https://doi.org/10.3917/entre.133.0099

Benlemlih, M., & Bitar, M. (2018). Corporate social responsibility and investment efficiency. Journal of business ethics, 148(3), 647-671.

Berrone, P., Cruz, C., & Gomez-Mejia, L. R. (2012). Socioemotional wealth in family firms: Theoretical dimensions, assessment approaches, and agenda for future research. Family business review, 25(3), 258-279. https://doi.org/10.1177/0894486511435355

Biddle, G. C., Hilary, G., & Verdi, R. S. (2009). How does financial reporting quality relate to investment efficiency?. Journal of accounting and economics, 48(2-3), 112-131. https://doi.org/10.1016/j.jacceco.2009.09.001

Chalevas, C., Giannopoulos, P., Koutoupis, A., & Samara, A. (2021). Evaluating the role and effectiveness of the audit committee on the quality of financial reporting: evidence from Greek PIEs. International Journal of Banking, Accounting and Finance, 12(4), 368-388. https://doi.org/10.1504/IJBAAF.2021.118629

Chen, R., El Ghoul, S., Guedhami, O., & Wang, H. (2017). Do state and foreign ownership affect investment efficiency? Evidence from privatizations. Journal of Corporate Finance, 42, 408-421. https://doi.org/10.1016/j.jcorpfin.2014.09.001

Chen, S., Chen, X. I. A., & Cheng, Q. (2008). Do family firms provide more or less voluntary disclosure?. Journal of accounting research, 46(3), 499-536. https://doi.org/10.1111/j.1475-679X.2008.00288.x

Chen, S., Chen, X., Cheng, Q., & Shevlin, T. (2010). Are family firms more tax aggressive than non-family firms?. Journal of financial economics, 95(1), 41-61. https://doi.org/10.1016/j.jfineco.2009.02.003

Cheng, M., Dhaliwal, D., & Zhang, Y. (2013). Does investment efficiency improve after the disclosure of material weaknesses in internal control over financial reporting?. Journal of accounting and economics, 56(1), 1-18. https://doi.org/10.1016/j.jacceco.2013.03.001

Cheng, X., Huang, F., Palmon, D., & Yin, C. (2021). How does information processing efficiency relate to investment efficiency? Evidence from XBRL adoption. Journal of Information Systems, 35(1), 1-25. https://doi.org/10.2308/isys-18-063

Claessens, S., Djankov, S., & Lang, L. H. (2000). The separation of ownership and control in East Asian corporations. Journal of financial Economics, 58(1-2), 81-112. https://doi.org/10.1016/S0304-405X(00)00067-2

Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting earnings management. Accounting review, 193-225. https://www.jstor.org/stable/248303

Dhawan, A., Ma, L., & Kim, M. H. (2020). Effect of corporate tax avoidance activities on firm bankruptcy risk. Journal of Contemporary Accounting & Economics, 16(2), 100187. https://doi.org/10.1016/j.jcae.2020.100187

Demsetz, H., and Lehdn, K. (1985), "The structure of corporate ownership: Causes and consequences", Journal of political economy, Vol. 93 No. 6, pp.1155-1177. https://doi.org/10.1016/j.jcae.2020.100187

Desai, M. A., & Dharmapala, D. (2009). Corporate tax avoidance and firm value. The review of Economics and Statistics, 91(3), 537-546. https://doi.org/10.1162/rest.91.3.537

Dyreng, S. D., Hanlon, M., & Maydew, E. L. (2008). Long‐run corporate tax avoidance. The accounting review, 83(1), 61-82. https://doi.org/10.2308/accr.2008.83.1.61

Edmans, A. (2009). Blockholder trading, market efficiency, and managerial myopia. The journal of finance, 64(6), 2481-2513. https://doi.org/10.1111/j.1540-6261.2009.01508.x

Edwards, A., Schwab, C., & Shevlin, T. (2016). Financial constraints and cash tax savings. The Accounting Review, 91(3), 859-881. https://doi.org/10.2308/accr-51282

Faff, R. W., Gray, S., & Tan, K. J. K. (2016). A contemporary view of corporate finance theory, empirical evidence and practice. Australian Journal of Management, 41(4), 662686. https://doi.org/10.1177/0312896216632032

Fama, E. F. (1980). Banking in the Theory of Finance. Journal of monetary economics, 6(1), 39-57. https://doi.org/10.1016/0304-3932(80)90017-3

Gomez-Mejia, L. R., Cruz, C., Berrone, P., & De Castro, J. (2011). The bind that ties: Socioemotional wealth preservation in family firms. Academy of Management annals, 5(1), 653-707. https://doi.org/10.5465/19416520.2011.593320

Gul, F. A., & Tsui, J. S. L. (1997). A test of the free cash flow and debt monitoring hypotheses:: Evidence from audit pricing. Journal of Accounting and Economics, 24(2), 219-237. https://doi.org/10.1016/S0165-4101(98)00006-8

Hasan, T., John, K., Teng, H., and Wu, Q. (2023), "Creative corporate culture and corporate tax avoidance", The British Accounting Review, pp. 101217.

Herbert, W. E., & Agwor, T. C. (2021). Corporate governance disclosure and corporate performance of Nigerian banks. Journal of Research in Emerging Markets, 3(3), 14-36.

Jensen, M. C., & Meckling, W. H. (2019). Theory of the firm: Managerial behavior, agency costs and ownership structure. In Corporate governance (pp. 77-132). Gower.

Khurana, I. K., Moser, W. J., & Raman, K. K. (2018). Tax avoidance, managerial ability, and investment efficiency. Abacus, 54(4), 547-575. https://doi.org/10.1111/abac.12142

Kim, J. B., Li, Y., & Zhang, L. (2011). Corporate tax avoidance and stock price crash risk: Firm-level analysis. Journal of financial Economics, 100(3), 639-662. https://doi.org/10.1016/j.jfineco.2010.07.007

Kothari, S. P., Lewellen, J., & Warner, J. B. (2006). Stock returns, aggregate earnings surprises, and behavioral finance. Journal of Financial Economics, 79(3), 537-568.

https://doi.org/10.1016/j.jfineco.2004.06.016

Lim, Y. (2011). Tax avoidance, cost of debt and shareholder activism: Evidence from Korea. Journal of Banking & Finance, 35(2), 456-470. https://doi.org/10.1016/j.jbankfin.2010.08.021

McLean, R. D., Zhang, T., & Zhao, M. (2012). Why does the law matter? Investor protection and its effects on investment, finance, and growth. The Journal of finance, 67(1), 313-350. https://doi.org/10.1111/j.1540-6261.2011.01713.x

Moin, A., Guney, Y., & El Kalak, I. (2020). The effects of ownership structure, sub-optimal cash holdings and investment inefficiency on dividend policy: evidence from Indonesia. Review of Quantitative Finance and Accounting, 55(3), 857-900.

Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of financial economics, 13(2), 187-221. https://doi.org/10.1016/0304-405X(84)90023-0

Schulze, W. S., & Gedajlovic, E. R. (2010). Whither family business?. Journal of Management Studies, 47(2), 191-204. https://doi.org/10.1111/j.1467-6486.2009.00887.x

Shahzad, F., Rauf, S. A., Rehman, I. U., Saeed, A., & Al Barghouthi, S. (2017). Earning management strategies of leveraged family and non-family controlled firms: an empirical evidence. International Journal of Business and Society, 18(S3), 503-518.

Shams, S., Bose, S., & Gunasekarage, A. (2022). Does corporate tax avoidance promote managerial empire building?. Journal of Contemporary Accounting & Economics, 18(1), 100293. https://doi.org/10.1016/j.jcae.2021.100293

Taylor, G., Al-Hadi, A., Richardson, G., Alfarhan, U., & Al-Yahyaee, K. (2019). Is there a relation between labor investment inefficiency and corporate tax avoidance?. Economic Modelling, 82, 185-201. https://doi.org/10.1016/j.econmod.2019.01.006

Tsao, S. M., Lin, C. H., & Chen, V. Y. (2015). Family ownership as a moderator between R&D investments and CEO compensation. Journal of Business Research, 68(3), 599-606. https://doi.org/10.1016/j.jbusres.2014.09.001

Vieira, E. F. S. (2020). The earnings announcements consequences in public family firms.International Journal of Banking, Accounting and Finance, 11(1), 71-94. https://doi.org/10.1504/IJBAAF.2020.104484

Published

2025-11-27

How to Cite

Ben Slimane, M., & Ladhari, H. (2025). Tax behavior and resource allocation in family-owned firms. International Journal of Economic Perspectives, 19(11), 154–171. Retrieved from http://www.ijeponline.org/index.php/journal/article/view/1205

Issue

Vol. 19 No. 11 (2025)

Section

Peer Review Articles
Copyright & Licensing

Copyright (c) 2025 Mhamed Ben Slimane, Habiba Ladhari

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Allows users to: distribute and copy the article; create extracts, abstracts, and other revised versions, adaptations or derivative works of or from an article (such as a translation); include in a collective work (such as an anthology); and text or data mine the article. These uses are permitted even for commercial purposes, provided the user: gives appropriate credit to the author(s) (with a link to the formal publication through the relevant URL ID); includes a link to the license; indicates if changes were made; and does not represent the author(s) as endorsing the adaptation of the article or modify the article in such a way as to damage the authors' honor or reputation. CC BY