The value relevance of corporate taxation in Europe:Tax harmonization vs. tax competition

This paper examines the effects of corporate income taxation on equity prices. There is a current European-wide debate between advocates of tax harmonization and supporters of tax competition. Due to that, the level of importance of corporate taxes on the market value of European firms gathers high significance and as such is analyzed in this study. To assess the research question a tax-modified Ohlson (1995) model is employed with the results indicating the value relevance of taxes for the companies of nine European countries. In addition, in countries that favor tax competition by taxing corporate income in low rates, taxation appears to have a greater influence on stock prices....