Corporate Governance and Tax Litigation: Evidence from Brazil’s B3 Market

Abstract

ABSTRACT Objective: examine how corporate governance indicators - Novo Mercado (NM), Novo Mercado Index (IGNM), Corporate Governance Index (IGC), and Tag Along Index (ITAG) - relate to tax litigation among B3-listed firms. Methods: we analyze 3,290 firm-year observations from 254 B3 companies (2009-2023) using OLS, random effects, difference GMM, system GMM, and quantile regressions, with controls for size, business risk, liquidity, leverage, age, profitability, asset structure, and sector litigiousness. Results: governance effects are heterogeneous: NM and IGC are associated with lower tax litigation, consistent with stronger monitoring and compliance, whereas IGNM and ITAG correlate with higher litigation, possibly reflecting greater visibility, complexity, and scrutiny. Quantile estimates show these effects are strongest in the upper tail of the litigation distribution. Conclusions: robust governance can reduce tax disputes, but visibility- and rights-driven mechanisms may increase exposure in complex settings. Firms should pair transparency with proactive tax risk governance to balance compliance, scrutiny, and litigation costs.