Implication of Tax Avoidance on Firm Value in India

This study examines the implications of corporate tax avoidance on firm value among five publicly listed Indian companies – Reliance Industries, Hindustan Unilever Limited, Infosys, ITC and Tata Steel over the period FY2020 to FY2024. Using Effective Tax Rate (ETR) as a proxy for tax avoidance, Price-to-Earnings (P/E) ratio as a measure of firm value and Return on Equity (ROE) as a profitability control variable, the research employs descriptive analysis, scatter plots and correlation analysis on secondary panel data. Findings reveal a moderate positive correlation between ETR and firm value, suggesting that lower tax payments do not consistently translate into higher market valuations. Profitability, earnings stability and industry characteristics emerge as more decisive determinants of investor perception than tax efficiency alone. The study contributes to a geographically underrepresented area of empirical research and engages with ongoing theoretical debates surrounding agency costs and shareholder value enhancement. The results carry implications for investors, corporate managers and policymakers, particularly in the context of India’s evolving regulatory landscape including GAAR and transfer pricing norms. Sustainable financial performance, rather than aggressive tax minimisation, appears more reliably associated with enduring shareholder value.