Climate change, tax avoidance, and shareholder value: Evidence from the Paris Agreement

Abstract

Motivated by the rapidly emerging literature on climate change and finance, we explore the effect of corporate tax avoidance on shareholder value around the adoption of the Paris Climate Agreement. Companies engaging in greater tax avoidance experience significantly more favorable stock market reactions. Companies that achieve greater savings through tax avoidance have a larger surplus of resources that can be directed toward climate-related actions in alignment with the Paris Agreement, resulting in enhanced shareholder value. Furthermore, the advantageous impact of tax avoidance on shareholder wealth is significantly less pronounced for companies that pay out larger dividends.