Foreign Investor's Interest and Tax Avoidance: Contingency Perspectives Depending on Country's Protection Level and Law Systems

This study investigates the differences in multinational and national firms’ tax avoidance.
Furthermore, it investigates the differences between firms’ contingent behaviour, because
of a country’s legal system and level of protection for investors. This research takes into account
the phenomenon of firms’ tax avoidance. Besides that, it proposes novelties as follows. First, this
study highlights that multinational firms tend to avoid taxes more than national ones do. Second,
it induces the dividend catering theory related to a country’s level of investor protection. Lastly,
it argues that a country’s level of investor protection, and legal system, make firms contingent on
their tax avoidance behaviour. This study finds that firms operating in countries with high levels
of investor protection and a common law system avoided paying tax more often than firms did
in different countries. The findings imply that these firms could grow larger than others. It means
that this study suggests there could be economic consequences. One consequence is that countries
should increase their levels of investor protection and somehow redefine their legal systems. Therefore,
they could enhance their capital markets and subsequently improve their nations’ welfare.