The Moderating Effect of Board Efficiency on the Relationship between Corporate Tax Rates and Firm Growth in Sub-Saharan Africa

Even though efficient boards contribute to firms’ growth in diverse ways, other factors such as the corporate tax rates in several countries tend to militate against the positive impact efficient boards may have on firms’ growth. Using firm and country-level data of 372 non-financial listed sub-Saharan Africa firms spanning 2007 to 2017, this study investigates the moderating effect of board efficiency on the relationship between corporate tax rates and firm growth in sub-Sahara Africa. The study employs the difference and the two-step generalized method of moments (GMM) techniques suggested by Blundell and Bond (1998) to estimate the dynamic panel models specified by the study for the ten years the study covers. The choice of this estimation technique is motivated by its ability to eliminate unobservable heterogeneity and address endogeneity problems usually associated with panel data. The results show that, with efficient boards in place, a reduction in corporate tax rates enables firms in sub- Saharan Africa to grow by increasing the returns on their equities, all other things being equal. Similarly, the results show that firms in sub-Saharan Africa can increase their sales levels even when corporate taxes are raised, as long as efficient boards exist. The implication is that, in the presence of efficient boards, an increase or decrease in corporate tax rates would positively impact the growth of firms in sub-Saharan Africa. Therefore, consideration should be given to the effects of corporate tax rates on firms’ growth if firms do not have efficient boards in place.