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Political connections, corporate governance, and tax aggressiveness in Malaysia

Author

Listed:
  • Effiezal Aswadi Abdul Wahab
  • Akmalia M. Ariff
  • Marziana Madah Marzuki
  • Zuraidah Mohd Sanusi

Abstract

Purpose - The purpose of this paper is to examine the relationship between political connections and corporate tax aggressiveness in Malaysia. In addition, this paper investigates the relationship between corporate governance variables and corporate tax aggressiveness. Next, the study investigates the mitigating role of corporate governance in the relationship between political connections and corporate tax aggressiveness. Design/methodology/approach - The sample of this study is based on 2,538 firm-year observations during the 2000-2009 periods. This study employs a panel least square regression with both period and industry fixed effects. The study retrieved the corporate governance variables from the downloaded annual reports, whilst the remaining data were collected from Compustat Global. Findings - This study finds that politically connected firms are more tax aggressive than non-connected firms. Furthermore, the study finds that large board size decreases the likelihood of tax aggressiveness and a non-linear relationship exists between institutional ownership and tax aggressiveness suggesting increase in monitoring as the ownership increases. However, the study finds no evidence to suggest that corporate governance mitigates the influence of political connections in promoting tax aggressiveness behavior. The findings suggest that the impact of political connections could outweigh the benefits of changes in corporate governance in Malaysia. Research limitations/implications - The data are not recent, but it reflects a rather longitudinal research period. Originality/value - This paper extends the literature of tax research in Malaysia which is in its’ infancy stage. Furthermore, it investigates the role of political connections in tax-planning research.

Suggested Citation

  • Effiezal Aswadi Abdul Wahab & Akmalia M. Ariff & Marziana Madah Marzuki & Zuraidah Mohd Sanusi, 2017. "Political connections, corporate governance, and tax aggressiveness in Malaysia," Asian Review of Accounting, Emerald Group Publishing Limited, vol. 25(3), pages 424-451, September.
    • Handle: RePEc:eme:arapps:ara-05-2016-0053
    DOI: 10.1108/ARA-05-2016-0053
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    Citations

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    Cited by:

    1. Khaw, Karren Lee-Hwei & Zainudin, Rozaimah & Rashid, Rasidah Mohd, 2019. "Cost of debt financing: Does political connection matter?," Emerging Markets Review, Elsevier, vol. 41(C).
    2. Kovermann, Jost & Velte, Patrick, 2019. "The impact of corporate governance on corporate tax avoidance—A literature review," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 36(C), pages 1-1.
    3. Imuetinyan EGUAVOEN & Isaac UKARIN & Ojuye Thomas ENEWEROME, 2023. "Board Attributes and Tax Planning of Corporate Organisations in Nigeria," Management and Economics Review, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 8(1), pages 46-57, February.
    4. Albaity, Mohamed & Shah, Syed Faisal & Al-Tamimi, Hussein A.Hassan & Rahman, Mahfuzur & Thangavelu, Shanmugam, 2023. "Country risk and bank returns: Evidence from MENA countries," The Journal of Economic Asymmetries, Elsevier, vol. 28(C).
    5. Wang, Litan & You, Kefei, 2022. "The impact of political connections on corporate tax burden: Evidence from the Chinese market," Finance Research Letters, Elsevier, vol. 47(PB).
    6. Rosmaria Jaffar & Chek Derashid & Roshaiza Taha, 2021. "The Moderating Effect of Non-audit Services Fee on Aggressive Tax Planning: Empirical Evidence From Malaysian Listed Companies," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 12(3), pages 240-250, May.

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