Effective Tax Planning and Stock Crash Risk

Abstract

Firms design tax planning strategies to generate a lower payment; indirectly, the results stimulate higher valuation because of lower non-capital expenditure. In mainstream research using developed market data, tax planning stimulates crash risk because the activities are considered to hide bad news and information asymmetry to investors. Using Indonesia stock exchange data, one of the emerging stock markets, firms with effective tax planning strategies tend to have less crash risk. However, when firms report higher profitability, tax planning generates a higher probability of future crash risk. Our findings contribute to behavioral aspects in the stock market and taxation.