Political connections, joint audit and tax avoidance: evidence from Islamic banking industry

Hana Ajili and Hichem Khlif

Journal of Financial Crime, 2020, vol. 27, issue 1, 155-171

Abstract: Purpose - The purpose of this paper is to examine the association between political connections and tax avoidance in Islamic banking industry and to test whether joint audit affects this relationship. Design/methodology/approach - Tax avoidance is measured using effective tax rate while political connections represent an indicator variable that equals 1 if a bank has at least one politically connected director on the board of directors and zero otherwise. Findings - This study documents that political connections are negatively associated with effective tax rate, while joint audit is positively related to the same variable. We also find that the negative association between political connections and effective tax rate becomes insignificant for joint-audited banks, while it remains negative and significant for banks audited by one auditors. Originality/value - The findings of this study have policy implications for banking industry because joint audit reduces the adverse effect of political connections on tax avoidance.

Keywords: Tax avoidance; Political connections; Joint audit; Islamic banking industry (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfcpps:jfc-01-2019-0015

DOI: 10.1108/JFC-01-2019-0015

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