Country-level governance, accounting standards, and tax avoidance: a cross-country study

Tao Zeng

Asian Review of Accounting, 2019, vol. 27, issue 3, 401-424

Abstract: Purpose - The purpose of this paper is to examine the impact of country-level governance and accounting standards on corporate tax avoidance. Design/methodology/approach - This paper is an empirical work using a sample of listed companies from 36 countries. Findings - This paper finds that firms resident in countries with stronger country-level governance engage in less tax avoidance. Aspects of stronger country-level governance include higher government effectiveness and regulatory quality, and stronger enforcement of law and control of corruption. This paper also finds that firms adopting international accounting standards (IFRS) engage in less tax avoidance than those using local accounting standards. Further examination of the effect of interactions between country-level governance and the adoption ofIFRSon tax avoidance finds that there is a substitute relationship between country-level governance and the adoption ofIFRS. Social implications - This study has significant implications for policy makers, corporate management and academics. It documents that when a country implements governance targeting improving government effectiveness, enhancing regulatory quality, strengthening enforcement of laws and controlling corruption, this will lead to less corporate tax avoidance. It also shows that the adoption ofIFRSwill reduce corporate tax avoidance, probably by enhancing accounting quality and disclosure, and that the adoption ofIFRSprovides a bond mechanism in reducing tax avoidance in countries with weak governance. Originality/value - This paper is the first study to examine the impact of country-level governance on tax avoidance at the corporate level. It is also the first study to examine how country-level governance interplays withIFRSin shaping firms’ tax avoidance activities.

Keywords: Tax avoidance; IFRS; Country-level governance; Effective tax rate; Book–tax difference (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:arapps:ara-09-2018-0179

DOI: 10.1108/ARA-09-2018-0179

Access Statistics for this article

Asian Review of Accounting is currently edited by Prof. Haiyan Zhou

More articles in Asian Review of Accounting from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().