The Impact of Tax Avoidance and Financial Distress on Performance: Evidence from Vietnam

Abstract

Purpose: The article explores how tax avoidance and financial distress affect firm performance. It analyzes financial data from the reports of publicly listed companies in Vietnam from 2010 to 2022.
Design/methodology/approach: The research employs various methods, including Pool-OLS, Fixed Effects Model (FEM), Random Effects Model (REM), and the Generalized Method of Moments (GMM) to address potential endogeneity issues in the model.
Findings: The findings indicate that both tax avoidance and financial distress have similar effects on firm performance, which is measured using Return on Assets (ROA) and Tobin's Q. Furthermore, the study reveals that financial leverage and company size negatively impact ROA, while positively influencing Tobin's Q. Economic growth is found to have a positive effect on ROA but a negative effect on Tobin's Q. In addition, the paper also examines the interaction between tax avoidance and financial distress, the results show that the moderating variable is negatively related to performance measured by Tobin's Q.
Originality/value: Tax avoidance has a positive impact on performance, so businesses should also consider the impact of tax avoidance behavior to benefit the business while still complying with tax laws.