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Article
Publication date: 11 September 2017

Effiezal Aswadi Abdul Wahab, Akmalia M. Ariff, Marziana Madah Marzuki and Zuraidah Mohd Sanusi

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…

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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.

Details

Asian Review of Accounting, vol. 25 no. 3
Type: Research Article
ISSN: 1321-7348

Keywords

Article
Publication date: 22 March 2022

Taruntej Singh Arora and Suveera Gill

There is growing empirical evidence in context of the developed countries that greater tax aggressiveness of companies is associated with higher incentives to their executives…

Abstract

Purpose

There is growing empirical evidence in context of the developed countries that greater tax aggressiveness of companies is associated with higher incentives to their executives. However, the same cannot be extended to emerging economies like India due to their distinct compensation practices. The present study, therefore, aims to bridge this gap by exploring the relationship between executive compensation and corporate tax aggressiveness in context of the Indian economy.

Design/methodology/approach

The sample comprises a subset of the S&P BSE 500 Index companies for FY 2014–15 through 2018–19. A fixed effects panel model has been used to discern the impact of executive compensation on corporate tax aggressiveness with and without the moderating effect of a proxy for corporate governance strength.

Findings

The econometric analysis evinces a significant negative impact of the fixed executive compensation on tax aggressiveness, specifically with the moderation of corporate governance strength which was found to have a positive effect on the said relation. In addition, no significant relationship was observed between variable compensation and tax aggressiveness. These results were robust to an alternate specification of the corporate governance strength proxy as well as the system generalised method of moments estimation employed to deal with endogeneity.

Originality/value

The study provides insights on a poor interest alignment between shareholders and managers in India owing to an insignificant amount of variable pay in the total executive compensation.

Details

Managerial Finance, vol. 48 no. 6
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 29 October 2020

Ahmed Boussaidi and Mounira Hamed-Sidhom

This study sheds light on the determinants related to the corporate board of directors and the firms’ ownership nature of tax aggressiveness strategies of Tunisian listed firms…

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Abstract

Purpose

This study sheds light on the determinants related to the corporate board of directors and the firms’ ownership nature of tax aggressiveness strategies of Tunisian listed firms and what could be their effect on its level in a postrevolution context.

Design/methodology/approach

Our research considers only nonfinancial firms listed in the Tunisian stock exchange during the 2011–2017 period. It is based on unbalanced panel data.

Findings

Findings suggest that women presence on the corporate board, CEO duality, the managerial and institutional ownership regularize significantly the level and the management's behavior of engagement in tax aggressiveness practices and reduce the firm’s overall risks of its consequences in terms of tax positions stability.

Research limitations/implications

Our investigation considers only nonfinancial firms to avoid noisy results and for the significant differences between accounting standards within financial and nonfinancial firms, besides sample homogeneity and comparability considerations.

Practical implications

This study provides evidence that some governance mechanisms, even reasonably dedicated to consider the risk of tax aggressiveness and to prevent its consequences, have a paradoxical effect and amplify the tax aggressiveness’ level rather than defending the firm’s viability and its financial stability. It offers signals to managers about specific governance attributes that strengthen and/or control the extent of tax aggressive strategies.

Social implications

This research gives a particular road map for society, investors and practitioners to depict the firms’ level of tax aggressiveness and especially to understand its attributes related to the corporate board of directors and the ownership's nature through evidences from a postrevolution context.

Originality/value

Our research contributes to prior literature by examining the effect of corporate board characteristics and different ownership natures on the extent of tax aggressiveness during and after the revolution period in Tunisia and confirms and infers some prior findings of tax aggressive determinants in underdevelopment context.

Details

EuroMed Journal of Business, vol. 16 no. 4
Type: Research Article
ISSN: 1450-2194

Keywords

Article
Publication date: 16 November 2015

Liangliang Wang

The purpose of this paper is to investigate the association between corporate tax aggressiveness and cash holdings and that between corporate tax aggressiveness and the value of…

2904

Abstract

Purpose

The purpose of this paper is to investigate the association between corporate tax aggressiveness and cash holdings and that between corporate tax aggressiveness and the value of cash. Further, this study explores the impact of the tax enforcement level on the above associations.

Design/methodology/approach

Under a Chinese special institutional background, this study constructs tax aggressiveness and tax enforcement measures. On this basis, using a sample of Chinese A-share listed companies over the period from 1990 to 2010, this study empirically tests the association between tax enforcement, corporate tax aggressiveness, and cash holdings.

Findings

By empirically testing with Chinese listed companies as the sample, this paper finds the following: with the increase in the tax avoidance level, the precautionary incentives of cash, and the level of financial constraint likewise increase, which will make the level of firm cash savings increase. Meanwhile, although tax avoidance will induce lower transparency and higher agency costs, the marginal value of the cash held by the more aggressive firms is higher due to the higher market competition effect of the cash. Additional tests suggest that, the tax enforcement level can weaken the effect of tax avoidance on the transparency and agency problem; however, because the tax enforcement level can also increase the tax risk of the firm, the positive relation between firm’s tax avoidance and cash savings is strengthened correspondingly. On the value of cash holdings, the tax enforcement level can also make the marginal value of tax aggressive firms higher.

Originality/value

First, this paper provides new evidence on the determinants of firm’s cash holdings from the perspective of cash savings. Second, this paper examines the association between Chinese firm’s tax aggressiveness and the value of cash, which not only provides evidence for the local tax literature but also has reference value for the foreign literature. Third, this paper has reference value for research on the association between corporate tax avoidance activities and other operating decisions. Finally, this paper not only provides new evidence on the association between tax enforcement and corporate governance, but also extends the prior literature on the association between corporate tax aggressiveness and cash holdings.

Details

China Finance Review International, vol. 5 no. 4
Type: Research Article
ISSN: 2044-1398

Keywords

Article
Publication date: 1 December 2021

Taruntej Singh Arora and Suveera Gill

There is mixed evidence in the extant literature on the firm value implications of corporate tax aggressiveness in the developed economies. There are, however, limited studies…

1036

Abstract

Purpose

There is mixed evidence in the extant literature on the firm value implications of corporate tax aggressiveness in the developed economies. There are, however, limited studies that discuss this relationship in the case of emerging economies. The present study aims to bridge this research gap by exploring the relationship between corporate tax aggressiveness and firm value in context of the Indian economy.

Design/methodology/approach

The sample comprises 547 S&P BSE 500 (Standard and Poor's Bombay Stock Exchange 500) Index companies for Financial Year (FY) 2009–10 through FY 2018–19. A fixed-effects panel model has been used to discern the impact of corporate tax aggressiveness on firm value with and without the moderating effect of a proxy for corporate governance strength.

Findings

The results highlight a significant negative relationship between corporate tax aggressiveness and firm value in India, whilst the analysis on the moderating effect of corporate governance strength on this relationship revealed a mix of significant and insignificant results. These results were robust to an alternate specification of the corporate governance strength proxy, the system GMM estimation employed to deal with endogeneity and a change in the Corporate Social Responsibility (CSR) regulation brought into effect by the Companies Act, 2013.

Originality/value

The study reveals a firm value discount associated with corporate tax aggressiveness in India which is likely due to its ability to increase opportunities for wealth expropriation by managers. This can further be attributed to the ineffective corporate governance mechanisms that make agency problems more severe in the case of emerging economies like India.

Details

Managerial Finance, vol. 48 no. 2
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 18 August 2023

Mohamed Mihilar Shamil, Dulni Wanya Gooneratne, Dasitha Gunathilaka and Junaid M. Shaikh

This study examines the effect of board characteristics on the tax aggressiveness of listed companies on the Colombo Stock Exchange in Sri Lanka.

Abstract

Purpose

This study examines the effect of board characteristics on the tax aggressiveness of listed companies on the Colombo Stock Exchange in Sri Lanka.

Design/methodology/approach

The sample consists of 264 firm-year observations of non-financial listed companies in Sri Lanka from 2014 to 2019. The dynamic panel system GMM technique was used to test the hypotheses, and further analyses were performed using the propensity score matching technique.

Findings

All four effective tax rate measures' mean values were lower than the statutory tax rate, indicating the likelihood of tax planning. Whether board attributes are likely to mitigate tax aggressiveness is uncertain because the results are inconsistent and depend on the ETR measure. Similarly, the logistic regression results derived using the PSM approach are inconsistent, suggesting that board characteristics may have a limited effect on tax aggressiveness. Hence, the corporate governance-tax aggressiveness nexus is limited in the case of Sri Lanka.

Research limitations/implications

This investigation is limited to non-financial listed companies in Sri Lanka and incorporates only four tax aggressiveness measures. Findings are imperative for policymakers, regulators, and professional bodies to improve corporate governance codes and rules to enhance organisational transparency toward corporate tax payments.

Social implications

Aggressive tax planning by companies will reduce government tax revenue, hinder social progress, and cause public mistrust of large corporations and institutions.

Originality/value

This study provides insight into the nexus between corporate governance and tax aggressiveness in a middle-income economy in South Asia hit by an economic crisis where tax revenue has fallen and tax enforcement is weak.

Details

Journal of Accounting in Emerging Economies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2042-1168

Keywords

Article
Publication date: 30 September 2022

Dawei Jin, Hao Shen, Haizhi Wang and Desheng Yin

The purpose of this paper is to empirically explore whether and to what extent the changes in state corporate income tax rates affect corporate tax aggressiveness.

Abstract

Purpose

The purpose of this paper is to empirically explore whether and to what extent the changes in state corporate income tax rates affect corporate tax aggressiveness.

Design/methodology/approach

Using a differences-in-differences approach with dynamic treatment, the authors investigate the effect of staggered changes in state corporate income tax rates in the USA on corporate tax aggressiveness.

Findings

Firms become more aggressive in avoiding taxes following state tax increases but are insensitive to tax cuts. The effect of state tax increases on tax aggressiveness is weaker for firms with greater debt tax shields and marginal tax rates. Firms are more likely to shift their operations and relocate their headquarters out of states experiencing tax increases.

Originality/value

To the best of the authors' knowledge, this paper is the first to study the relation between state tax policy changes and corporate tax aggressiveness. This paper finds an asymmetrical pattern of corporate tax aggressiveness in response to state tax changes.

Details

Pacific Accounting Review, vol. 35 no. 1
Type: Research Article
ISSN: 0114-0582

Keywords

Article
Publication date: 14 June 2019

Nirmala Devi Mohanadas, Abdullah Sallehhuddin Abdullah Salim and Lim Kwee Pheng

This study aims to examine how corporate social responsibility (CSR) performance and corporate tax aggressiveness relate in Malaysia, an emerging economy in Southeast Asia. It…

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Abstract

Purpose

This study aims to examine how corporate social responsibility (CSR) performance and corporate tax aggressiveness relate in Malaysia, an emerging economy in Southeast Asia. It also seeks to analyse how CSR performance in community, environment, marketplace and workplace themes relate to the tax aggressiveness of listed companies in this country.

Design/methodology/approach

This study analyses 182 companies listed in the Main Market of Bursa Malaysia from 2010 to 2012 using fixed-effects panel regression and ordinary least square regression. It uses current effective tax rate as a proxy for corporate tax aggressiveness and measures CSR performance using specially developed CSR performance disclosure index.

Findings

This study finds no statistical support that CSR performance is related to corporate tax aggressiveness in Malaysia. Similarly, there are no statistically significant relationships between environment-related and marketplace-related CSR performance and corporate tax aggressiveness. Nevertheless, community-related CSR performance has significant negative relationship with corporate tax aggressiveness. Workplace-related CSR performance meanwhile has significant positive relationship with corporate tax aggressiveness.

Originality/value

This study expands the current literature's focus on developed economies by examining the relationship between CSR and corporate tax aggressiveness in the setting of an emerging Asian economy, i.e. Malaysia. It is also the first empirical study focussing on this relationship among Malaysian listed companies.

Article
Publication date: 14 November 2016

Khamoussi Halioui, Souhir Neifar and Fouad Ben Abdelaziz

The purpose of this paper is to examine the effect of corporate governance structure and CEO compensation on the level of tax aggressiveness.

3175

Abstract

Purpose

The purpose of this paper is to examine the effect of corporate governance structure and CEO compensation on the level of tax aggressiveness.

Design/methodology/approach

This work analyzes a sample of 471 observations of 100 companies listed on the NASDAQ 100 for the period 2008-2012. It uses a fixed-effect panel model to analyze the effect of different model variables on the tax aggressiveness level.

Findings

The main finding of this study is the great influence of corporate governance structure and CEO compensation on reducing tax aggressiveness. Indeed, it finds a significant negative relation between board size, CEO salary, CEO stock options and tax aggressiveness. In addition, the study reveals that there is a direct negative relation between CEO duality, tax fees and tax aggressiveness.

Research limitations/implications

The study was conducted using robust methods to test the effect of corporate governance structure and CEO compensation on tax aggressiveness level. The generalized least squares method was used to fit panel data and overcome heteroscedasticity and autocorrelation problems. The aim of the study was to prove the great effect of both corporate governance structure and CEO compensation on reducing tax aggressiveness. As this study was based on data from American companies, the results cannot be generalized to all contexts.

Originality/value

This paper differs from previous work and tests the effect of corporate governance structure, CEO compensation, CEO characteristics and audit fees on tax aggressiveness. The findings of this study will enrich the literature on tax aggressiveness by suggesting that corporate governance structure and CEO compensation can significantly limit tax aggressiveness behavior. Therefore, shareholders must be aware of these two variables. They need to limit tax aggressiveness behavior, as it is usually accompanied by rent diversion, as reported by Desai and Dharmapala (2006). Therefore, these findings will be helpful to investors, managers and regulators because they have implications for the interactive decision-making process.

Details

Review of Accounting and Finance, vol. 15 no. 4
Type: Research Article
ISSN: 1475-7702

Keywords

Article
Publication date: 5 February 2021

Taher HAMZA and Elhem ZAATIR

This study aims to examine the impact of corporate tax aggressiveness on future stock price crash. It also tests the impact of corporate tax aggressivness in predicting stock…

Abstract

Purpose

This study aims to examine the impact of corporate tax aggressiveness on future stock price crash. It also tests the impact of corporate tax aggressivness in predicting stock price crash for a two-year forecast window.

Design/methodology/approach

The study sample consisted of 1,169 firm-years observations. The multivariate analysis uses three measures of stock price crash risk, as a dependent variable. The key variable is tax aggressiveness lagged by one period (one year) as all independent variables. As a robustness check, this paper uses alternate measures of earning management and a longer forecast window (two years) to predict stock price crash risk.

Findings

Tax aggressiveness activity is positively related to a firm-specific future stock price crash. Moreover, corporate tax aggressiveness predicts stock price crash risk for a long forecast window (two years). The findings are robust to a number of checks and have several policy implications.

Practical implications

The cost of continuing to accumulate bad news will be greater than the cost of revealing them. Thus, board of directors should encourage disclosure in order to reveal private news and then, to increase the amount of firm-specific information in returns. Another point is that tax aggressiveness behavior implies a risk to be perceived by the market as socially irresponsible, and may harm the firm reputation. This fact leads, in terms of portfolio management, to deter investment in firm-equity. Therefore, Investors should be cautious about the different risks of corporate tax aggressiveness.

Social implications

The accounting system in France, as in most European countries, relies upon codified rules and government requirement. Thus, our results provide some evidence of the effectiveness of the French laws and regulations in preventing indirectly earnings management from affecting stock price crash risk.

Originality/value

French companies are among the heavily taxed in Europe which makes France a particularly suitable context for studying tax aggressiveness issues. To the best of our knowledge, this study is the first in the french context, that document a signifcant and positive relation between tax aggressiveness and future crash risk. It focuses on the important role of corporate tax planning as a means of withholding bad news and its consequences in inflating stock prices.

Details

Journal of Financial Reporting and Accounting, vol. 19 no. 1
Type: Research Article
ISSN: 1985-2517

Keywords

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