The nexus of corporate tax avoidance and firm performance with moderating effect of ownership concentration and board independence: Evidence from developing economies.
Keywords:
Corporate tax avoidance, firm performance, ownership concentration, Pakistan, India, Bangladesh, Sri Lanka.Abstract
Corporate tax avoidance is a strategy aimed at minimizing the taxes a company owes to the government, with the intention of enhancing the firm's overall value. Nonetheless, according to agency theory, managers may exploit this approach to manipulate complex transactions, potentially enabling them to evade responsibilities or pursue their personal interests. Consequently, there is a compelling need to investigate the relationship between corporate tax avoidance and firm performance. Furthermore, this paper also explores whether ownership concentration and board independence moderates the relationship between corporate tax avoidance and firm performance. Using the sample of 1092 observations of banking firms from Pakistan, India, Bangladesh and Sri Lanka from 2010 to 2021, the results depicts mixed relationship between corporate tax avoidance and firm performance. While ownership concentration positively moderate the relationship between corporate tax avoidance and firm performance. Meanwhile board independence has insignificant moderating effect on the relationship between corporate tax avoidance and firm performance. The findings from this study hold significance for academic researchers, investors, and regulators. Academic researchers may find value in exploring the dynamic connection between ownership concentration, corporate tax avoidance and firm performance. Investors should take note that the concentrated ownership can channel the cash savings from higher corporate tax avoidance towards better firm performance. This study carries policy implications for policymakers regarding the formulation of future tax systems with the aim to minimize the possibility in tax avoidance practices.
References
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