Analyzing the Moderating role of Board Structure in Relation between Tax Avoidance and Business Strategy: New Insight from Emerging Economy
Abstract
Purpose: Taxation basically occupies an important place in the strategic decisions of companies, therefore, business are thinking to adopt a dynamic and active method for tax management. This study examine the moderating role of board independence, and board size in the relation between tax avoidance, and business strategy in developing economy of the Pakistan.
Design/Methodology/Approach: The sample of study consist of 125 non-financial companies listed on Pakistan stock exchange with time period of 5 years from 2013 to 2017 on annual basis. Study uses static (fixed effect, & random effect) and dynamic (GMM) panel data estimation techniques.
Findings: The result shows that increase in board size of a prospector firm will increase its trend to avoid taxes. The finding also reveals that an increase in the independent directors in prospector firms will decreases tax avoidance activities in emerging economies. Additionally, result shows that firm profitability and leverage are negatively related to tax payments while firm size show positive association with tax payments.
Implications/Originality/Value: Among others, this study suggests that tax authorities should advocate the prospector firms to increase the number of independent directors on board because there presence cause a reduction in tax avoidance activities and increase tax payments.
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Copyright (c) 2021 Muhammad Husnain, Mumtaz Ahmad, Aijaz Mustafa Hashmi
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