Abstract
The purpose of this study is to investigate the role of noncontrolling large shareholders (NCLSs) on corporate tax avoidance. It also examines whether family ownership moderates the relationship between NCLSs and tax avoidance. This study is an empirical work using a sample of 1,092 firms-years listed firms from four ASEAN countries: Indonesia, Malaysia, Philippines and Thailand. The data were analyzed using data panel regression. The results show that NCLSs are negatively associated with corporate tax avoidance, suggesting that NCLSs have an incentive to become governance control by monitoring and restraining an agency problem, but unrelated with by the controlling family. This study extends previous research by examining the role of family ownership as the moderating effect since family ownership generally has family members in managerial and board positions. This study provides a practical implication that regulators should improve the corporate governance policy to increase the protection of minority shareholders’ rights.
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Appendix
Appendix
Variable definitions and measurement
Variable | Definition |
|---|---|
BTD | (Pre-tax income-taxable income)/pre-tax income (Guenther 2018) |
ETR | Three-year sum of cash taxes paid/three-year sum of pre-tax income (Balakrishnan et al. 2019) |
NCLSs | Noncontrolling large shareholders measured by the ratio of the number of shares owned by second largest shareholders to shares owned by the largest shareholders |
FOWN | Family ownership: 1 if the firms owned by family, 0 otherwise |
LEV | Ratio of total liabilities to total assets |
ROA | Ratio of net income to total assets |
LIQUID | Ratio of current assets to current liabilities |
GDPCAP | Economic growth measured as GDP per capita less lagged GDP per capita |
GOV | Governance indicator from the World Governance Indicators (WGI) published by the world bank: voice and accountability, political stability and absence of violence/terrorism, government effectiveness, regulatory quality, rule of law, and control of corruption, which range from -2.5 if weak to 2.5 the country has strong governance |
ANTI_AVOIDANCE | Anti-avoidance rules, measured by index with a scale of 0–1 per rule: transfer pricing, interest deductibility, general anti-avoidance rule (GAAR), and controlled foreign-company (CFC) |
TAXRATE | Statutory Tax Rate for each country |
Industries that are subject to specific tax regulations and provisions
No. | Country | Industry types |
|---|---|---|
1 | Indonesia | Real estate and property firms; shipping and aviation firms; construction firms; oil, gas and geothermal drilling firms; metal, mineral and coal mining firms |
2 | Malaysia | Real estate and property firms; petroleum operation firms |
3 | Philippines | Real estate and property firms; shipping firms; flight firms |
4 | Thailand | Real estate and property firms; petroleum operation firms |
Sources: Rachmawati et al. (2019); PwC Tax Summaries; Thailand The Revenue Department.
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Sari, N.N., Nuryanah, S. The role of shareholders in controlling tax avoidance: evidence from ASEAN countries. Int J Discl Gov (2023). https://doi.org/10.1057/s41310-023-00205-4
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DOI: https://doi.org/10.1057/s41310-023-00205-4