This paper investigates the effect of corporate tax avoidance on firm value under different monetary policies based on the Chinese unique institutional context. We find that macroeconomic policies have an impact on the relationship between tax avoidance and firm value. Specifically, when the monetary policy tends to be loose, investors consider tax avoidance activities as the signal of agency problems and discount the valuation of firms. While in the periods of tightening monetary policy, tax avoidance can mitigate the financial constraints facing by firms as one potentially significant source of internal funds available to firms. Investors perceive the decrease of effective tax rate as the signal of higher value. Further investigation suggests that monetary policy affects the relationship between tax avoidance and firm value by influencing the financial constraints of firms.