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

Author

Listed:
  • Safa Gaaya
  • Nadia Lakhal
  • Faten Lakhal

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.

Suggested Citation

  • Safa Gaaya & Nadia Lakhal & Faten Lakhal, 2017. "Does family ownership reduce corporate tax avoidance? The moderating effect of audit quality," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 32(7), pages 731-744, August.
  • Handle: RePEc:eme:majpps:maj-02-2017-1530
    DOI: 10.1108/MAJ-02-2017-1530
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    Citations

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    Cited by:

    1. 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.
    2. Kovermann, Jost & Wendt, Martin, 2019. "Tax avoidance in family firms: Evidence from large private firms," Journal of Contemporary Accounting and Economics, Elsevier, vol. 15(2), pages 145-157.
    3. Rosida Ibrahim & Sutrisno T & M. Khoiru Rusydi, 2021. "The influence factors of tax avoidance in Indonesia," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 10(5), pages 01-10, July.
    4. Ferchichi Jihene & Dabboussi Moez, 2019. "The Moderating Effect of Audit Quality on CEO Compensation and Tax Avoidance: Evidence from Tunisian Context," International Journal of Economics and Financial Issues, Econjournals, vol. 9(1), pages 131-139.
    5. Samara, Georges, 2021. "Family businesses in the Arab Middle East: What do we know and where should we go?," Journal of Family Business Strategy, Elsevier, vol. 12(3).
    6. Helmi A. Boshnak, 2021. "The Impact of Audit Committee Characteristics on Audit Quality: Evidence from Saudi Arabia," International Review of Management and Marketing, Econjournals, vol. 11(4), pages 1-12.
    7. Aimee Peta Waterson & Lebogang Mototo & Tinashe Chuchu, 2021. "Does online ideal self-matter? Consumer perceptions of online brand advertisement," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 10(5), pages 11-21, July.
    8. Eva López‐González & Jennifer Martínez‐Ferrero & Emma García‐Meca, 2019. "Does corporate social responsibility affect tax avoidance: Evidence from family firms," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 26(4), pages 819-831, July.
    9. Benkraiem, Ramzi & Uyar, Ali & Kilic, Merve & Schneider, Friedrich, 2021. "Ethical behavior, auditing strength, and tax evasion: A worldwide perspective," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 43(C).
    10. Hong Nguyen Thi Phuong & Thao Nguyen Thi Vo, 2021. "Impacts of Sales Expense and Administrative Cost Stickiness on Earnings Management – Empirical Evidence from Vietnam," Management, Sciendo, vol. 25(2), pages 206-231, December.

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