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EFFECT OF
CORPORATE GOVERNANCE MECHANISMS ON TAX AVOIDANCE IN DEPOSIT MONEY BANKS IN
NIGERIA
ABSTRACT
The issue of
corporate tax avoidance has received vast empirical examination in Western
academe. This vast examination has however not been echoed in respect of
research interest ontax avoidance in corporate entities in Nigeria. This study
therefore sought to provide empirical evidence on whether internal corporate
governance mechanisms such as board size, board independence, board ownership,
high ownership concentration as well as interactions between high ownership
concentration with board size and independence are significantly associated
with corporate tax avoidance in deposit money banks (DMBs) in Nigeria. A sample
of fourteen out of the fifteen listed DMBs on the Nigeria stock exchange (NSE)
as at December 2014 were examined. Data for the study were sourced solely from
secondary sources in the form of annual financial statements of the studied
DMBs for the period 2006 to 2014. In order to tackle the issue of endogeneity,
arising from simultaneity in studies related to corporate governance outcomes,
the Arellano-Bond Generalized Method of Moments (GMM) estimation technique was
used. The study found that increase in last period‟s board
ownershipsignificantly increased tax avoidance in the studied DMBs in the
current period. Furthermore, increased board independence in the immediate
preceding period was found to significantly decrease tax avoidance inthe DMBs
in the current period. However, the relationship between board independence and
tax avoidance in the DMBs is significantly moderated by high ownership
concentration. Overall, the study concluded that internal corporate governance
mechanisms combine to significantly affect tax avoidance in the DMBs. In light
of the findings, the study therefore recommended thatin order to facilitate goal
alignment between the interests of directors and that of DMB owners, in respect
of tax avoidance, ownersinstitute more share-based remuneration for executive
directorsand encourage non-executive directors to take up some minimum number
of shares during their tenure. This will have the combined effect of
incentivizing the board to render strategic advice on and implement more tax
reduction strategies.It is also recommended that investors should look to DMBs
in Nigeria that have block and or institutional owners whose holdings average
at around 27%. This is because DMBs with such ownership pattern have a stronger
leeway in influencing board advisory and monitoring capacity in relation to
corporate strategies such as tax avoidance.
CHAPTER ONE
INTRODUCTION
1.1
Background to the Study
Taxes are a
fundamental revenue source for governments the world over. They represent a
recognized compulsory contribution by individuals and corporate entities
towards governance, development and maintenance of physical infrastructure as
well as a tool of bridging income inequities. They are also a means by which
the social contract between the State and the citizenry is being nourished and
facilitated (Christensen & Murphy, 2004). Taxes also happen to be the most
important, sustainable and predictable source of public finance for almost all
countries (Action Aid, 2013). Thus properly harnessing amounts collected via
taxes is a major concern for governments.
In assessing
the extent to which a country has harnessed and financed its economy through
taxation, an often used measure is the tax to GDP ratio. Scholars have however
noted that the tax to GDP ratio for the developing world as a whole is
relatively low when compared to what obtains in the developed economies. For
instance, according to Fuest and Riedel (2009) the tax to GDP ratio for
developing economies was on average approximately 12-15% as at 2005.
Conversely, for the developed economies, the average for the same year was
quoted as approximately 35%; a figure more than twice what obtained in the developing
climes. More recent reports show some improvement in the ratio but given the
potential the region has for increased tax revenue, the improvement has not
been found to be impressive. For instance, a report by the International Tax
Compact, ITC (2010), noted that while tax revenues in Organization for Economic
Cooperation and Development (OECD) countries amounted to almost 36% of gross
national income in 2007, the share in selected developing regions was estimated
to be around 23% for Africa (in 2007) and 17.5% for Latin America (in 2004).
Specifically focusing on Nigeria, as at January 2014, tax revenue to GDP ratio
stood at 20% (Premium Times, 2014). However with the rebasing of Nigeria‟s GDP
in 2014, which saw the country‟s GDP increase from N42.3 trillion to N80.3
trillion, making Nigeria Africa‟s largest economy, Nigeria‟s tax revenue to GDP
ratio fell from 20 % to 12 %. Out of the said 12 %, only 4% was attributable to
non-oil revenue. This led to a call by the then Minister of finance on the need
for the taxing authorities to redouble their revenue generation efforts
(Premium Times, 2014). This call by the minister as well as the assertion by
Oxfam (2014) that widening income disparities are the second greatest worldwide
risk in 2014, underscore the need to look deeper into the various sources of
development finance, especially taxation. The highly volatile nature of oil
revenue- which the Nigerian economy depends on to a large extent should,
arguably, also serve as an added impetus towards looking for ways to better
harness other revenue sources such as taxes.
In exploring
how to better harness tax revenues, it has been documented world over that, two
major activities; perpetrated by both individuals and corporations, have
continued to represent a great threat to amounts of revenue collected through
taxes. In addition, the said issues feature prominently in equity and
efficiency related discourse. The duo of issues are tax evasion and tax
avoidance. While both are aspects of tax non-compliance, the delineating
feature between the two lies in the fact that tax evasion is deemed out rightly
illegal while by definition tax avoidance is not. However notwithstanding the
delineating line between the two, in advanced economies, the duo have been
given serious consideration by their governments, through the relevant agencies.
Furthermore, the two issues have sparked much research; ranging from
investigating their determinants- both for individuals and for corporations
examinations of the attendant consequences engendered by their continued
flourish.
the question
of what factors explain the ability of firms and corporations to avoid taxes is
of particular interest to researchers. The reason for much of the focus on tax
avoidance as opposed to tax evasion is because evasion as a criminal act has to
be proven by court. Thus using the term avoidance is seen as less dyslogistic.
In however considering corporate tax avoidance as a research issue, researchers
such as Shackelford and Shevlin (2001) have earlier questioned the
applicability of models of individual tax evasion and avoidance such as the
Allingham and Sandmo (1972) framework in explaining and predicting corporate
tax avoidance. They argued that the separation of ownership and control, a
hallmark of corporate entities, means that existing individual tax
non-compliance frameworks cannot adequately explain same for corporations. In
furtherance of the argument, Slemrod (2004) stated that this same separation of
ownership and control means that shareholders need the corporation to engage in
some level of avoidance.
Thus, ininvestigatingwhat
factors explain tax avoidance by firms and corporations, earlier studies on
corporate tax avoidance focused primarily on examining whether firm-specific
characteristics such as size, leverage, growth, profitability,amongst others
could explain the tax avoidance phenomenon for business entities (e.g., Gupta
& Newberry, 1997). These earlier studies however failed to consider agency
issues in their analyses. Pointing out why failing to do so is an anomaly,
Desai and Dharmapala (2006, 2007) argued that since decisions about corporate
tax avoidance are made by firm managers, then the analysis of such decisions is
thus embedded in an agency framework.
The agency
framework is one that argues that managers are risk averse and self-serving in nature
and that this risk averseness as well as self-serving nature means that
managers will not typically act or make decisions in the best interest of
owners. To ensure goal congruence between management and shareholders or
owners, the framework suggests that managers should be both incentivized and
monitored. Corporate governance mechanisms represent the means by which
monitoring managers can be achieved.
Corporate
governance mechanisms can however be internal or external. The internal
mechanisms are those that have to do with the efficacy of the board of
directors in appropriately advising on and overseeing the design and
implementation of business strategies that will ensure that managers maximize
shareholder wealth. In addition, such internal mechanisms include the role that
shareholders themselves play in ensuring goal alignment. Prescriptions that
have to do in particular with size, independence, remuneration and financial
expertise of the board have therefore featured prominently in the various codes
of corporate governance that have been issued both nationally and
internationally as guides to what constitutes “best practice” in oversight. On
the other hand, external governance mechanisms include all other stakeholder
monitoring. Therefore mechanisms such as government regulation, debt covenants,
takeovers, financial analysts and the like are all aspects of external
governance.
Internal
governance mechanisms have, in particular, been touted to be foremost amongst
the monitoring mechanisms that can ensure goal alignment between owners and
managers. This is thought to be so because the board of directors is
responsible for the strategic direction of the company. Charting a course for
effective tax management is one of such strategic direction. Therefore, like
any other board room stratagem, managing taxes requires a laid down philosophy
which is usually determined by the board; documented, communicated and
implemented as overall corporate strategy (Erle, 2007). Thus, board related
governance mechanism such as size, independence, and ownership, amongst others
can arguably play a key role in determining a company‟s tax planning.
Board size
simply refers to the number of persons that constitute the board of directors
of a corporate entity. The number of persons that constitute the board of
directors is thought to influence the advisory capacity of the board as well as
its monitoring effectiveness. However, what constitutes the optimal board size
to achieve this effectiveness has been a subject of debate. While some argue
that a large board is more desirable because the larger the number on the board
the more the level of diversity, skill and expertise; others argue that larger
boards stifle discussion, therefore smaller boards are more effective because
communication within a smaller group is easier (Jensen, 1993). Given that
managing the tax expense (tax avoidance) is thought to be beneficial for
corporate owners, this study therefore finds it necessary to examine whether
board size as an internal governance metric affects tax avoidance by deposit
money banks (DMBs) in Nigeria.
Board
independence, the proportion of members of the board who are non-executive
directors, is another internal governance metric that influences board
oversight. For this reason the codes of corporate governance give it
categorical mention. Empirical studies to date, are however yet to consistently
document either significant associations or signs when relating board
independence to corporate outcomes. The intuition that board independence can
influence tax avoidance by DMBs is however appealing. This is because in
relation to other firm performance metrics such as profitability and firm
value, it has been argued that the independent judgments that non-executive
directors can bring to bear on corporate outcomes enhances oversight. Whether
this is so in relation to tax avoidance by Nigerian DMBs is however an
empirical question that is yet to be examined.
Ownership
structure dimensions such as having an individual with sizeable number of
shares in a company (block shareholding), the level of managerial shareholding
as well as the
5
ownership of
shares by other corporate bodies (institutional shareholding) are also regarded
as key internal governance mechanisms that ought to provide effective oversight
over management. This position arises from the fact that in the modern day
corporation,which has a multitude of owners and whereby the manager is not an
owner,the self-serving behavior of the manager needs to be checked. Therefore,
agency theorists such as Jensen and Meckling (1976), Fama (1980) as well as
Fama and Jensen (1983) have all posited that making the manager a co-owner and
having concentrated ownership in the form of either a block holder or an
institutional shareholder, or both, should give all such owners additional
motivation to more regularly appraise management; thereby ensuring goal
convergence. Tax avoidance is, in most instances, likely to benefit the
shareholders. Therefore, the preceding arguments are compelling enough for the
researcher to also conjecture that ownership plays a role in determining some
amount of tax avoidance at the corporate level.
This study
is motivated by the fact that even though several studies abound on the
corporate tax avoidance phenomenon, only a handful are on developing countries.
In addition, only few present evidence from Nigeria. Furthermore, of the
studies which examine the issue for Nigeria, to the best of the researchers‟
knowledge only Ekoja and Jim-Suleiman (2014) examined the issue for banks.
Their study however only provided evidence as to how an external governance
mechanism; competition, plays a role in determining Nigerian banks‟ tax
avoidance. Major failures in internal corporate governance mechanisms are
thought to be one of the principal factors that have continually undermined
bank performance (Sanusi, 2012).
The Nigerian
banking sector tends to be a key driver of activities in the corporate sector.
This it achieves primarily through its principal role in financial
intermediation. An OECD (2009) report also suggests that banks are particularly
creative in structuring tax avoidance schemes both for themselves and their
clients. These features of banks as well as differing arguments in the
literature (e.g. Adams & Mehran, 2003; Becher & Frye, 2008) as to
whether internal corporate governance mechanisms are actually effective in
regulated entities such as banks, serve as motivation for this study to examine
to what extent corporate governance mechanisms-specifically internal ones-
determine tax avoidance for DMBs in Nigeria.
1.2
Statement of the Problem
Tax avoidance
has, especially in the last decade or so, come under increased scrutiny and
criticism by governments, the media, aid groups as well as the general public.
The reason for this is because even though tax avoidance in itself is not an
illegality, as the law has not made it so, the amounts of revenue thought to
have been lost through various ingenious avoidance activities world-wide have
become an issue of concern. For instance, the Task Force for Financial
Integrity and Economic Development, a global coalition of non-profit groups
that campaign for transparency in the financial system, put the global foreign
aid budget at $1 billion per year while it estimated that the developing world
loses $1 trillion every year through evasion and/ avoidance, corruption as well
as money laundering (Reuters, 2013). The Global Financial Integrity (GFI),
another advocacy group, in its 2012 report, estimated that $5.86 trillion moved
from developing countries to tax havens over the period from 2001 to 2010 with
outflows from Nigeria alone amounting to a princely $129 billion. This princely
sum earned the nation seventh spot on the GFI‟s top ten list of developing
countries with the highest illicit outflows. A further breakdown of the
components of the illicit outflows shows that the greatest part (i.e. 60% -
65%) was as a result of tax avoidance(Philippines Star, 2013).
Arising, in
part, from concerns over the aforementioned lost amounts of revenue;
researchers have also upped the ante on the analysis of tax avoidance. While
however still acknowledging the legality of tax avoidance, several researchers
such as Potas (1993), Christensen and Murphy (2004), Fuest and Riedl (2009),
Sikka (2010), Prebble and Prebble (2013) and Fischer (2014), amongst others,
bring to the fore the argument that the legality of a phenomenon does not
necessarily translate to that phenomenon being fair or ethically and morally
acceptable. This argument is particularly evident regarding the phenomenon of
tax avoidance. This is because tax avoidance contributes to a situation whereby
tax payers of the same income bracket will not pay taxes on the same marginal
tax rate. This has the effect of making the tax system appear unfair to those
who are unable to avoid taxes.
Research on
corporate tax avoidance in comparison with that of tax avoidance by individuals
could however be said to be of relatively recent focus. The said recent focus
of research on the phenomenon has also tended to be conducted principally in
developed climes. The earlier empirical studies on corporate tax avoidance such
as Gupta and Newberry (1997) had focused more on the interplay between
firm-specific characteristics such as size, leverage, profitability, capital
intensity, amongst others in determining corporate tax avoidance. Given that
the results on the association between the studied firm-specific
characteristics and tax avoidance turned out to be far from consistent (e.g.,
Richardson&Lanis, 2007 and Hsieh, 2012); researchers further broadened the
scope of investigation, on the determinants of corporate tax avoidance, to
include other factors such as corporate transparency (Wang, 2010), CEO/manager
effects (Dyreng, Hanlon &Maydew, 2010; Chyz, 2010), ownership structure
(Badertscher, Katz &Rego, 2009; Chen, Chen, Cheng &Shevlin, 2010),
external auditor effects (Mcguire, Omer & Wang, The basis for broadening of
the scope of investigation has however been questionedby Hanlon &Heitzman
(2010). They contend that the choice, by researchers,of what variables to study
as determinants of corporate tax avoidance has seldom been backed by theory.
Thus, in order to provide a theoretical base for the study of corporate tax
avoidance, a relatively young but burgeoning literature which seeks to situate
the determinants of corporate tax avoidance within an agency theoretical
framework has emerged. According to Hanlon and Heitzman (2010), theoretical
arguments for the study of corporate tax evasion and avoidance as agency issues
have been pioneered by Crocker and Slemrod (2004), Slemrod (2004), as well as
Chen and Chu (2005). The pioneers however failed to back their arguments with
empirical data. Thus other researchers have sought empirical evidence in
support of the framework. Specifically Desai and Dharmapala (2007), Minnick and
Noga (2010), Khaoula and Ali (2012), Zemzem and Ftouhi (2013), Khaoula (2013)
and Armstrong, Blouin, Jagolinzer and Larcker (2015) are amongst a spate of
relatively recent researches that have directly examined the interplay between
corporate governance mechanisms and tax avoidance.
A common
theme across the aforementioned studies that directly relate governance
mechanisms with corporate tax avoidance is that while they refer to governance
broadly, they habitually study only board related mechanisms to the detriment
of other governance mechanisms. Governance is a myriad of mechanisms which are
both external to the corporation as well as internal to it. For instance,
shareholder and stakeholder monitoring, competition, the markets for both managerial
and corporate control as well as debt covenants are all governance mechanisms.
Therefore narrowing such a multi-faceted concept down to only board mechanisms
9
does not
appropriately proxy the phenomenon. The said empirical studies have also not
been consistent in documenting either significant associations or similar signs
of association in their studies.
One possible
reason for the inconsistencies may be because none of the past studies has
considered whether interactions with other variables are the actual force
behind the effects of the studied mechanisms on tax avoidance. As Hermalin and
Weisbach (2003) and Adams, Hermalin and Weisbach (2010) point out, the effect
of board mechanisms on firm performancemay not be direct. Therefore failure to
take this into consideration is likely to distort interpretations. In this
study, it is therefore proposed that concentrated ownership moderates the
relationship between board structure proxies such as size and independence on
corporate tax avoidance. Considering this moderating effect is important
because shareholders with concentrated ownership (blocks and institutions)
usually leverage upon their concentrated holdings to either directly sit on the
board of directors or indirectly have a representative as director (La Porta,
Lopez-de-Silanes, Schleifer&Vishny, 1998). This representation on the board
is likely to affect both board advisory capacity (size) as well as monitoring
capacity (independence). Furthermore, Connelly, Hoskisson, Tihanyi and Certo
(2010) have argued that concentrated ownership leads to concentrated decision
rightsand this leads to superior monitoring.
Localizing
the focus to Nigeria, the researcher observes that the discourse as well as
study of corporate tax avoidance is yet to gather full momentum. Most existing
studies such as AbdulRazaq (1985), Alabede, Ariffin and Idris (2011) and Ibadin
and Eiya (2013), to name a few, focused on examining individual tax compliance
issues. This is despite assertions by researchers such as Adegbie and Fakile
(2011a, 2011b), that in Nigeria, the contribution to overall tax revenue by
companies has continually fallen far short of expectations. This lack of
10
research
momentum may however be, in part, because evidence on whether Nigerian
corporations actively engage in tax avoidance schemes, is largely anecdotal;
evasion headlines seem to feature more prominently (see for example news on
Proshare website accessed by the researcher on 15/03/2013, about tax evasion by
petroleum companies as well as a This Day online news report accessed on the
same date on the issue of evasion in the automobile industry in Nigerian).
The
anecdotal nature of narrations on the extent of corporate tax avoidance in
Nigeria is however not surprising. This is because the very nature of tax
avoidance demands some degree of obfuscation (Desai &Dharmapala, 2006;
2007; 2009a). Thus as a research issue corporate tax avoidance is only very
recently receiving academic interest in Nigeria with studies such as James and
Igbeng (2014) and Ekoja and Jim-Suleiman (2014). The James and Igbeng (2014)
study however merely gave a theoretical exposition of the matter which is to a
large extent a re-echo of Desai and Dharmapala (2007). Ekoja and Jim-Suleiman
(2014) on the other hand studied the effect of competition on tax avoidance by
Nigerian deposit money banks (DMBs) and reported the surprising result that
competition alone explains 100% of the variation in Nigerian DMBs tax
avoidance; a situation that is hardly plausible for social science phenomena.
Their results are therefore suggestive of either measurement issues that have
to do with the proxies used by the study or data inaccuracies.
The focus of
this research was therefore on furthering study on the agency theory
perspective of tax avoidance. In order to achieve this the association between
corporate governance mechanisms and tax avoidance in Nigerian DMBs was
examined. The research focused on banks because differing regulation meant
their exclusion from analysis by several past international studies on
corporate tax avoidance (e.g., Zimmerman, 1983; Taylor & Richardson, 2011;
Abdul Wahab, 2011) while in Nigeria, to the best of the researchers‟ knowledge
only Ekoja and Jim-Suleiman (2014) have previously studied tax avoidance by
banks. It seems therefore that the financial sector has not been adequately
covered by researchers in relation to tax avoidance. Studying the sector is
important because Minnick and Noga (2010), have earlier posited that different
companies with different governance structures are likely to choose different
tax management strategies. Given this assertion, it may therefore be misleading
to assume that the empirical results of studies of some corporate sectors will
hold for other sectors. Providing sector-specific contexts to show the
interplay between governance and tax avoidance is therefore necessary.
Consequently,
the study sought to fill the gap on the determinants of corporate tax avoidance
in DMBs in Nigeria. In particular, this was done by examining the extent to
which internal corporate governance mechanisms play a role in determining
corporate tax avoidance in DMBs in Nigeria. To realize this board size, ownership
and independence as well as high block ownership concentration were studied.
The interactions between concentrated ownership and board size as well as board
independence were also examined. In addition the study sought to fill the gap
on available research from the developing world; more so, with specific
reference to the literature gap on corporate tax avoidance in Nigeria. The
study also covered the banking sector, a part of the financial services sector
that has been relatively understudied in relation to the tax avoidance
phenomenon.
1.3 Research
Questions
To
facilitate inquiry the following research questions were raised:
Does board size have a significant effect
on corporate tax avoidance among DMBs in Nigeria?
Does board independence have a significant
effect on corporate tax avoidance among DMBs in Nigeria?
Does high ownership concentration have a
significant effect on corporate tax avoidance among DMBs in Nigeria?
Does board ownership have a significant
effect on corporate tax avoidance among DMBs in Nigeria?
Does high ownership concentration
significantly moderate the relationship between board size and tax avoidance
among DMBs in Nigeria?
Does high ownership concentration significantly
moderate the relationship between board independence and tax avoidance among
DMBs in Nigeria?
1.4
Objectives of the Study
The overall
objective of this study is to determine to what extent internal corporate
governance mechanisms determine tax avoidance in Nigerian deposit money banks.
The specific objectives of the study are to:
assess whether board size has a significant
effect on corporate tax avoidance among DMBs in Nigeria.
ascertain whether board independence has a
significant effect on corporate tax avoidance among DMBs in Nigeria.
estimate whether high ownership
concentration has a significant effect on corporate tax avoidance among DMBs in
Nigeria.
evaluate whether board ownership has a
significant effect on corporate tax avoidance among DMBs in Nigeria.
examine whether high ownership concentration
moderates the relationship between board size and tax avoidance among DMBs in
Nigeria.
examine whether high ownership
concentration moderates the relationship between board independence and tax
avoidance among DMBs in Nigeria.
1.5 Statement
of Hypotheses
In line with
the aforementioned objectives of the study, the following hypotheses; stated in
null form,were formulated for testing:
Ho1: board
size has no significant effect on corporate tax avoidance among DMBs in
Nigeria.
Ho2: board
independence has no significant effect on corporate tax avoidance among DMBs in
Nigeria.
Ho3: high
ownership concentration has no significant effect on corporate tax avoidance
among DMBs in Nigeria.
Ho4: board
ownership has no significant effect on corporate tax avoidance among DMBs in
Nigeria.
H05: the
relationship between board size and tax avoidance among DMBs in Nigeria is not
significantly moderated by high ownership concentration.
H06: the
relationship between board independence and tax avoidance among DMBs in Nigeria
is not significantly moderated by high ownership concentration.
1.6 Scope of
the Study
This study
empirically examined the effect of internal corporate governance mechanisms on
corporate tax avoidance in Nigeria. The study covered only listed Deposit Money
Banks (DMBs) in Nigeria. The focus on banks was in part, hinged on the role of
banks as financial intermediaries in the economy. This role therefore means
that banks tend to drive activities in the corporate sector. There are also
assertions that banks structure transactions both for customers and themselves
that are likely to facilitate tax avoidance (OECD, 2009). The study covered the
period 2006 to 2014. The year 2006 was chosen as a base year so as not to allow
the effects of the 2005 banking sector consolidation exercise to distort
results while 2014 represents the latest year beforethe CBN classification of
some DMBs as strategically important (CBN 2014a). The new classification,
effective March 1, 2015 imposes stringent requirements on the said banks in
respect of liquidity and capital adequacy requirements. The requirements are
likely to affect some financial statement items and therefore introduce some
distortion in analysis. The period overlaps with the 2001-2010 previously noted
by the GFI (2012) report as the period in which Nigeria lost substantial
revenue through avoidance activities.
1.7
Significance of the Study
The study is
significant for the following reasons: Firstly, taxes are a key source of
revenue for governments and often feature prominently in government‟s income
redistribution function. Government, through its relevant tax agencies,is
therefore interested in identifying which characteristics matter most in
determining cross-sectional differences in tax avoidance for corporate bodies
such as the banks that were studied. The findings of the study that revealed
significant associations between internal corporate governance mechanisms and
corporate tax avoidance in DMBs in Nigeria will therefore aid government in
designing proper policy both in respect of corporate governance and in respect
of tax avoidance.
Secondly,
researchers are interested in understanding determinants of corporate tax
avoidance.The study serves to add to the overall existing literature on the
determinants of corporate tax avoidance by filling the gaps on corporate tax
avoidance research in the developing world as well as in relation to
documenting results from one class of highly regulated entities-banks.
Thirdly, in
terms of theory, the research is significant for its contribution to the agency
theoretical perspective in relation to corporate tax avoidance. In its barest
form, the agency perspective does not consider interactions. The study has
modified the framework to reflect the fact that highly concentrated ownership
interacts together with specific board mechanisms to be effective in ensuring
goal congruence.
Fourthly,
shareholders wish to know whether the management appointed by them is properly
controlling the organizations expenses; in this case taxes, in the direction of
increasing shareholder wealth. Since the study focused on the effect of
corporate governance mechanisms on tax avoidance, the study will benefit
shareholders by showing them which internal governance mechanisms they should
pay more attention to in their desire to achieve more effective tax outcomes
such as avoidance.
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