The purpose of this paper is to examine how corporate tax avoidance influences investment efficiency and investigate whether family ownership impacts this relationship.
Our study focuses on French non-financial companies listed on the SBF 120 over the period 2005–2022, resulting in a final sample comprising total observations of 1,866 firm years. All financial information is extracted from the Worldscope database. All family data, such as voting rights, family identity and family CEO, are collected manually from the annual reports obtained from the Financial Market Authorities website (AMF). To identify whether a company is family owned, we analysed information on shareholders and control relationships mentioned in the reports, particularly the sections dealing with the ownership structure of the firm. We use a quantitative approach to test our hypothesis.
This paper examines the impact of corporate tax avoidance on investment efficiency. Based on a sample of French listed firms over the period 2005–2022, our results reveal that tax avoidance decreases investment efficiency. We also find that tax avoidance by family-controlled firms leads to increased underinvestment. We further find that this relationship is non-linear, suggesting that once the level of family control reaches a certain level, the relationship between tax avoidance and investment efficiency turns positive, supporting the socio-emotional wealth theory.
One limitation of this study is that our findings may not be generalized to other developed countries, as they are contingent upon the unique characteristics of the French context.
The paper provides two practical implications. Firstly, it warns managers in French companies that tax avoidance may lead to investment inefficiency. Secondly, it provides valuable insights related to various aspects of family firms, specifically their engagement within the French business landscape.
Our research contributes to the expanding literature on family business research by investigating the impact of family control on the relationship between tax avoidance and investment efficiency. To gain a deeper understanding of the extent to which family control can influence this association, we focus on the non-linear relationship between family firms with excess control rights and the link between tax avoidance and investment.
