Political connections, corporate governance, and tax aggressiveness in Malaysia
Abstract
Purpose
The purpose of this paper is to examine the relationship between political connections and corporate tax aggressiveness in Malaysia. In addition, this paper investigates the relationship between corporate governance variables and corporate tax aggressiveness. Next, the study investigates the mitigating role of corporate governance in the relationship between political connections and corporate tax aggressiveness.
Design/methodology/approach
The sample of this study is based on 2,538 firm-year observations during the 2000-2009 periods. This study employs a panel least square regression with both period and industry fixed effects. The study retrieved the corporate governance variables from the downloaded annual reports, whilst the remaining data were collected from Compustat Global.
Findings
This study finds that politically connected firms are more tax aggressive than non-connected firms. Furthermore, the study finds that large board size decreases the likelihood of tax aggressiveness and a non-linear relationship exists between institutional ownership and tax aggressiveness suggesting increase in monitoring as the ownership increases. However, the study finds no evidence to suggest that corporate governance mitigates the influence of political connections in promoting tax aggressiveness behavior. The findings suggest that the impact of political connections could outweigh the benefits of changes in corporate governance in Malaysia.
Research limitations/implications
The data are not recent, but it reflects a rather longitudinal research period.
Originality/value
This paper extends the literature of tax research in Malaysia which is in its’ infancy stage. Furthermore, it investigates the role of political connections in tax-planning research.
Keywords
Acknowledgements
The authors would like to thank the Accounting Research Institute for partial research support (600-RMl/ARl_IRES 5/3(5/2016). Effiezal would like to thank the School of Accounting, Curtin University for the financial support in conducting this research.
Citation
Abdul Wahab, E.A., Ariff, A.M., Madah Marzuki, M. and Mohd Sanusi, Z. (2017), "Political connections, corporate governance, and tax aggressiveness in Malaysia", Asian Review of Accounting, Vol. 25 No. 3, pp. 424-451. https://doi.org/10.1108/ARA-05-2016-0053
Publisher
:Emerald Publishing Limited
Copyright © 2017, Emerald Publishing Limited