The nexus of firms characteristics and tax avoidance – do independent directors have a role? Evidence from Bangladesh

Md Shamim Hossain, Md. Sobhan Ali, Md. Zahidul Islam, Md. Safiuddin, Chui Ching Ling and Chorng Yuan Fung

Journal of Accounting in Emerging Economies, 2025, vol. 15, issue 3, 623-644

Abstract: Purpose - This research investigates the moderating impact of independent directors on the relationship between tax avoidance and the key characteristics of the listed firms, namely profitability, company size and leverage in an emerging nation setting. Design/methodology/approach - The generalised method of moments (GMM) technique, dynamic ordinary least squares and second-generation unit root test are used in this study. A long-term cointegration of the variables is supported by the Kao residual cointegration test. Findings - The current study finds that a company’s profitability, firm size and independent directors have a considerable favourable impact on corporate tax avoidance. In addition, independent directors have a negative and significant moderating effect on the association between firm size, profitability and tax avoidance. This relationship implies that the presence of independent directors can lessen the tax avoidance practice of business firms. Research limitations/implications - Our findings highlight the importance of including independent directors to improve corporate governance, reduce tax avoidance and make better-informed investment decisions. It also highlights the role of policymakers and regulatory bodies in implementing laws, providing guidance and transparency and ensuring active shareholder engagement. Originality/value - As far as the authors are aware, this is the first research conducted in Bangladesh to examine the influence of independent directors on a company’s likelihood of engaging in tax avoidance.

Keywords: Independent directors; Tax avoidance; Firms characteristics; Emerging economy; M14; G34 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jaeepp:jaee-03-2024-0120

DOI: 10.1108/JAEE-03-2024-0120

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