The role of corporate governance on corporate tax avoidance: a developing country perspective

Guo Yao Koay and Noor Sharoja Sapiei

Journal of Accounting in Emerging Economies, 2024, vol. 15, issue 1, 84-105

Abstract: Purpose - This study examines the role of corporate governance on corporate tax avoidance from the developing country perspective of Malaysia. Design/methodology/approach - A sample of 318 firm-year observations from 2016 to 2020 from the 100 largest listed companies in Malaysia was analysed using a fixed effects panel least squares regression model. Findings - CEOs play a significant role in corporate tax avoidance in Malaysia. Specifically, they are motivated by money and power to engage in risky tax avoidance activity. It was also found that corporate governance mechanisms related to the board of directors have a limited effect on companies’ tax compliance issues. Practical implications - This study’s findings can help regulators and policymakers understand the circumstances leading to increased tax aggressiveness as well as the limitations of certain governance mechanisms in curbing tax avoidance activity within companies. The findings can also assist shareholders and investors in formulating internal policies to create better alignment of their interests with those of management. The unique emerging economy evidence and insights from this study advance knowledge and can inspire fellow researchers in their future studies. Originality/value - This study differs from most prior studies by examining the governance and tax issue from a developing country perspective, that of Malaysia. Developments in the country’s corporate governance framework and tax landscape in recent years make it relevant and interesting to investigate the issue in this emerging economy. Offering unique empirical evidence and insights from an emerging economy viewpoint, and with findings that may be generalised to other emerging economies sharing similar market traits (particularly ASEAN nations), this study enriches and extends the existing literature.

Keywords: Corporate tax avoidance; Corporate governance; CEO compensation; CEO duality; Board size; Board independence; Board gender diversity; Foreign ownership; CEO personal characteristics; Foreign CEO; Developing country; Agency theory (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jaeepp:jaee-01-2023-0022

DOI: 10.1108/JAEE-01-2023-0022

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