Does the firm's performance influence tax avoidance? A study in the Tunisian context

Abstract

Previous studies have shown different results for the relationship between performance and tax evasion, both in terms of sign and significance. First, this paper examines the relationship between corporate performance, as measured by return on assets (ROA), and tax evasion, as measured by the effective tax rate (ETR). Based on a sample of 49 Tunisian listed companies from 2012 to 2018, this study uses fixed-effect regression. In a second step, this work adds an ROA square term to the model. This research examines whether the relationship between ROA and RET is a quadratic relationship with this completed model. The results show that the relationship between firm performance and tax evasion is negative and significant. The results support the theory of political power. The fixed-effects regression results provide the reasons for a non-linear relationship. This paper shows that the relationship between ROA and REE is a U-shaped relationship. This paper builds on previous research by examining the relationship between firm performance and tax evasion, and is a contribution to the literature and policy makers.  To my knowledge, there are no studies that focus on the association between tax evasion and firm performance as a variable of interest in Tunisia.