Reducing corporate tax avoidance remains a central policy objective for governments, including Australia. Under Australia’s unique dividend imputation system, corporate tax payments do not solely represent a cost to firms, but may instead redistribute value between companies and shareholders through the creation of franking credits. Using a panel of Australian Securities Exchange (ASX) listed firms over the period 2007–2024, this study examines the relationship among corporate tax avoidance, dividend franking, and firm valuation. We find that firms with lower cash effective tax rates (ETRs) generally exhibit higher share prices, consistent with the view that tax savings relax financing constraints and increase expected distributable cash flows. However, this relationship reverses for firms that pay franked dividends. For these firms, higher cash ETRs are associated with higher share prices, suggesting that greater corporate tax payments increase the stock of franking credits available for current and future distributions. As franking credits enhance the after‑tax value of dividends for investors, firm value reflects a combination of tax savings and the benefits arising from dividend imputation. Our findings are robust to a range of sensitivity analyses, including entropy balancing to address potential selection bias and the use of alternative measures of corporate tax avoidance. Additional analyses show that the association between cash ETRs and share prices varies systematically with dividend franking percentages, and that higher tax risk is associated with lower firm valuation. The results also persist when share prices are measured three months after the fiscal year-end. Overall, the study highlights the importance of institutional tax settings in shaping the valuation effects of corporate tax avoidance.