Does family ownership reduce corporate tax avoidance? The moderating effect of audit quality

Abstract

Purpose The purpose of this paper is to shed light on the effect of family ownership on corporate tax avoidance. It also investigates whether audit quality affects tax avoidance practices by family firms. Design/methodology/approach Based on a sample of 55 Tunisian listed companies from 2008 to 2013, the authors use GLS regression models estimated with robust standard errors, clustered at the firm level. Findings The results show that family ownership is positively associated with corporate tax avoidance practices, suggesting that families expropriate minority interests by extracting rents from tax-saving positions. These practices are less prominent after the 2011 Tunisian revolution, suggesting that the pressure from governments and non-governmental organizations against corruption and unethical behavior has increased after the revolution. However, the findings show that audit quality curbs the incentives of family firms to engage in aggressive tax positions, supporting the moderating effect of audit quality on the relation between family ownership and tax avoidance. Research limitations/implications These findings suggest that Tunisian family firms are likely to expropriate minority interests by extracting rents from tax-saving positions. However, in presence of high-quality audit, the relation turns negative, suggesting that external audit quality is an efficient corporate governance device that is likely to monitor family corporate decisions. Originality/value This paper extends previous research by investigating the moderating effect of external audit quality on the relation between tax avoidance and family ownership. It also examines tax avoidance by family firms in a unique setting: Tunisia, a transitioning economy subsequently to the 2011 revolution, where investors’ rights are weakly protected and the financial market is not well-developed as in more developed countries.

Does corporate social responsibility affect tax avoidance: Evidence from family firms

“…This agency approach has been previously examined by other academics (Desai & Dharmapala, 2006;Desai, Dyck, & Zingales, 2007); for them, the rent extraction by managers and shareholders is considered to be included in the benefits we were talking about. Because of the high-family ownership, rent extraction becomes more opportunistic, and families are likely to increase the benefits provided by this activity (Gaaya et al, 2017). At this point, we refer to the called entrenchment hypothesis; it states that, because of their high-voting rights, families as majority shareholders could increase their power in the company to entrench themselves.…”

“…The first measures is the effective tax rate "ETR" widely used by prior literature (Chen et al, 2010;Steijvers et al, 2014;Gaaya et al, 2017;Lin et al, 2017) defined as the total income tax expense-current plus deferred tax expense-divided by pretax book income (measure as income before discontinued operations and extraordinary items and excludes special items). As Chen et al (2010, p. 46) suggest, "this measure reflects avoidance tax planning through permanent book-tax differences."…”

“…According to the existence of mixed results on the relationship between CSR and tax avoidance (Laguir et al, 2015;Landry et al, 2013;Lin et al, 2017) and in particular, within a family firm's framework (Chen et al, 2010;Gaaya, Lakhal, & Lakhal, 2017;Moore et al, 2017;Steijvers & Niskanen, 2014), our paper focuses on the following.…”

“…As final contributions to prior literature, this study adopts an international approach rather than a single-country or region approach (Cascino, Pugliese, Mussolino, & Sansone, 2010;Gaaya et al, 2017;Lin et al, 2017;Moore et al, 2017). Whereas previous studies about the topics of CSR, family firms, and tax avoidance developed a crosssectional analysis, this study adopts a panel data approach that allows multiple comparison among countries and years.…”

Pengaruh Komite Audit dan Managerial Entrenchment terhadap Agresivitas Pajak serta Implikasinya terhadap Kinerja Keuangan Perusahaan

“…Perusahaan dengan catatan laba tinggi akan dikenakan pajak yang juga tinggi akibat tarif pajak progresif. Pajak umumnya dinilai sebagai biaya paling besar bagi perusahaan (Gaaya, Lakhal, & Lakhal, 2017). Pajak mereferesentasikan biaya yang signifikan bagi perusahaan dan mereduksi arus kas yang tersedia bagi perusahaan dan shareholders, hal ini menjadi pemicu bagi perusahaan untuk mengurangi pajak melalui tindakan agresivitas pajak (Chen et al, 2010).…”