Tax Aggressiveness and Corporate Financialization in Brazil

Abstract

Objective: This study investigates the relationship between tax aggressiveness and corporate financialization in companies listed on Brazil's B3 Stock Exchange from 2009 to 2022. Method: We employed a panel linear regression model, adjusting for fixed effects related to individual companies and specific years. We used metrics such as abnormal book tax differences (BTDA), effective tax rate (ETR), and Comprehensive Value-Added Tax Rate (CVATR) to measure tax aggressiveness. Results: Our findings show a positive correlation between tax aggressiveness and corporate financialization. Firms employing aggressive tax strategies exhibited increased financialization. For robustness, dummy variables targeting aggressively taxed firms were introduced, confirming the initial relationship. CVATR emerged as a particularly effective metric in the Brazilian context due to its complex tax structure. Originality/Relevance: This study is pioneering in exploring the nexus between tax aggressiveness and corporate financialization in Brazil, contributing valuable insights for local researchers, investors, policymakers, and financial analysts. Theoretical/Methodological Contributions: Our research introduces innovative approaches for measuring financial assets tailored to Brazil's unique market conditions. It also enriches the current body of literature by confirming CVATR as an effective metric for capturing tax aggressiveness in Brazil.