Does ESG Disclosure Matter for the Tax Avoidance–Firm Value Relationship? Evidence from an Emerging Market

Abstract

This study examined the impact of tax avoidance on firm value. Further, it investigated whether ESG disclosure moderates this relationship. This study examined the top 100 non-financial firms listed in the S&P/EGX ESG index over the period from 2018 to 2022. The sample contained 80 companies with 400 firm-year observations. Statistical analysis was conducted using pooled ordinary least squares (OLS) and fixed effects regression models. The statistical analysis revealed a negative and significant impact of tax avoidance on firm value. Further, ESG disclosure was found to have a negative moderating impact as it eliminated the negative impact of the effect of tax avoidance on firm value, leading to a positive overall effect. These results carry important implications for regulators, investors, and shareholders in Egypt and other emerging markets, underscoring ESG disclosure’s pivotal role in enhancing firm value and reducing tax avoidance practices within the Egyptian market. To the best of our knowledge, this study represents one of the earliest empirical explorations into the moderating effect of ESG disclosure on the relationship between tax avoidance and firm value in an emerging market. By presenting empirical evidence from the Egyptian market, this research broadens the existing literature on tax avoidance and firm value, offering fresh perspectives on the influence of ESG disclosure. Early studies have primarily focused on the direct effect of ESG disclosure on firm value.

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