Taxes and Firm Size in Pacific-Basin Emerging Economies Kenneth A. Kim Piman Limpaphayom U.S. studies have found a positive relation between effective tax rates and firm size indicating that large U.S. firms suffer a ‘political cost. ’ The applicability of this hypothesis is examined in the context of emerging economies. This study examines the relation between effective tax rates and firm size in Hong Kong, Korea, Malaysia, Taiwan and Thailand. First, for each year, firms are categorized into quintiles based on size, and mean effective tax rates are cal- culated to see if any pattern persists. Next, this potential relationship is tested using a regres- sion analysis framework. In this context, other potential determinants of effective tax rates are examined that have never been considered empirically by previous research. Overall, in con- trast to U.S. studies, the results suggest that there is a negative relation between firm size and effective tax rates in Pacific-Basin emerging economies. However, the zyxwvutsrqponmlkjihgfedc findings are sensitive to the choice of effective tax rate measures and study period. Profitability is also found to be a potentially relevant factor to explain effective tax rates. Key Words: Effective tax rates; firm size; emerging markets; political cost Do large firms pay relatively more taxes than small firms? The literature on the relation between effective tax rates and firm size in the U.S. suggests that large firms have higher effective tax rates (ETR) than small firms. Zimmerman (1983) contends that large U.S. firms pay more taxes because they experience greater government and public scrutiny. As a result, large firms are less likely to circum- Kenneth A. Kim l University of Wisconsin-Milwaukee, School of Business Administration, P.O. Box 742, Milwaukee, WI 53201. Piman Limpaphayom Journal of International Accounting, Auditing & Taxation, 7(1):47-68 ISSN: 1061-9518 Copyright 0 1998 by JAI Press, Inc. All rights of reproduction in any form reserved.