Tax management as a process of value creation: the influence of corporate governance mechanisms

Purpose This study examines the non-linear relationship between tax aggressiveness (TA) and firm value, investigating the influence of corporate governance mechanisms on the level of TA held by a company. While prior research provides mixed evidence on the impact of TA on firm value, this study advances the literature by employing a panel threshold regression model, allowing for a more nuanced understanding of this relationship. Design/methodology/approach The research analyzes a sample of 168 Italian non-financial firms listed on the Milano Stock Exchange over the period 2014–2021. The methodology utilizes five different proxies for corporate TA to ensure robustness and comprehensiveness in capturing its effects. Findings The results confirm the existence of a threshold effect: at lower levels, TA enhances firm value, but beyond a certain point, it becomes detrimental due to increased agency costs and regulatory scrutiny. Furthermore, the study highlights that the effectiveness of corporate governance mechanisms – such as board size, gender diversity, CEO duality, audit committee size and external audit quality – in mitigating agency costs varies between low and high TA regimes, emphasizing the contingent role of governance structures in corporate tax strategies. Originality/value These findings contribute to the existing literature by demonstrating the necessity of considering non-linearity and heterogeneity in tax planning outcomes. The study offers important theoretical and practical implications, guiding policymakers, investors and managers in designing governance frameworks that balance tax efficiency with long-term firm value sustainability.