Corporate governance and tax avoidance: evidence from an emerging market

Document Type

Article

Source of Publication

Applied Economics

Publication Date

1-1-2023

Abstract

This study investigates the impact of corporate governance practices (namely board characteristics, ownership structure, and audit committee characteristics) on corporate tax avoidance. For this purpose, this study uses generalised least squares regression on a sample of 138 companies listed on the Pakistan Stock Exchange. Ten-year data from 2009 to 2018 are collected from published annual reports, comprising 1380 firm-year observations. The findings highlight that board independence, concentrated ownership, and audit committee gender diversity are negatively associated with tax avoidance. Conversely, managerial ownership and audit committee independence positively influence aggressive tax behaviour. Additional analysis reveals that these impacts are nonlinear and change with the different levels of tax avoidance. Enhanced governance stifles tax avoidance at lower levels; however, it encourages tax avoidance when firms are already aggressively avoiding taxes. This scenario represents a ‘double down’ behaviour depicted by the Pakistani corporate sector. This is one of the foremost studies to explore the impact of corporate governance on tax avoidance in Pakistan. It contributes to the literature by examining the impact of under-researched factors such as board meetings and audit committee characteristics and provides insights into the conflicting findings on board characteristics and ownership structure.

ISSN

0003-6846

Publisher

Informa UK Limited

Disciplines

Business

Keywords

board characteristics, Corporate governance, corporate tax avoidance, emerging economy

Scopus ID

85152462189

Indexed in Scopus

yes

Open Access

no

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