- مبلغ: ۸۶,۰۰۰ تومان
- مبلغ: ۹۱,۰۰۰ تومان
Purpose: The study investigates the impact of disputed tax litigation risk on firm performance and stock return behaviour using a sample of Indian listed firms. Design/Methodology/Approach: We use disputed tax liability, reported as a contingent liability by the listed firms, as a proxy for the disputed tax litigation risk. To examine the impact of disputed tax litigation risk on firm performance (measured by accounting and market-based measures), our empirical approach focusses on the panel estimation technique. A portfolio-based approach using alternative asset pricing models examines the cross-sectional return variation due to the influence of disputed tax litigation risk. Findings: The results show a negative relationship between firm performance measures and disputed tax litigation risk. Cross-sectional test results reveal that higher disputed tax litigation risk is associated with higher expected returns. Research limitations/Implications: This study focusses on disputed tax reported under the heading of contingent liability as a proxy for litigation risk. The study will help investors and portfolio managers to consider disputed tax litigation risk as an important parameter in the evaluation of firm performance. The study will also help regulators to get feedback on tax related policies and improve the dispute resolution process. Originality/Value: The study adds to the existing literature on the relationship between litigation risk and firm performance. In the context of emerging market, this paper is the first-of-its-kind study, which focusses on disputed tax as a litigation risk proxy and examines its possible impact on firm performance and stock return behaviour.
Summary and Conclusion
The present paper examines the impact of disputed tax litigation risk (DTLR) on firm performance in the context of emerging markets. Our results revealed that DTLR matters for firm performance evaluation and expected stock return behaviour. We find a negative impact of DTLR on firm performance. This allows us to say that firms who have higher disputed tax liability do not perform well. Our cross-sectional test result using DTLR test asset portfolio reveals that after controlling the effect of systematic risk factors firms with higher DTLR generate higher expected return. Cross-sectional test results support our claim that higher DTLR firms will have higher expected return and market participants should take into account the tax litigation risk factors at the time of taking investment decisions. To briefly sum up, our results suggest that DTLR matters for firm performance and can alter the investment decision if misjudged as simply irrelevant information. Our study supports greater disclosure norms for the litigation risk and attempts to validate the practitioner's cause of concern on the contingent liability and stock market performance relationship. It also provides feedback to regulators for tax dispute settlement process and encourages firms to disclose better. As per our understanding in the emerging market context, this paper is the first-of-its-kind study which focusses on disputed tax as a litigation risk proxy and examines its possible impact on firm performance. There are also certain limitations. First, we consider disputed tax liability reported under contingent liability as a proxy for litigation risk and could not consider similar litigations and disputes due to unavailability of data and limited disclosures. Second, our study relied on the secondary data source and reported tax liability in the annual report. Despite these limitations, we add to the litigation risk literature and attempt to provide evidence on the relationship between DTLR and firm performance.