Corporate Tax Planning and Financial Performance of Companies Listed in Colombo Stock Exchange (CSE)

Abstract

This study focuses on how best-performing listed companies in CSE make strategies in tax planning to reduce tax liabilities without violating rules and regulations imposed by the Tax Authority. In this study, the corporate tax planning was measured by using the Effective Tax Rate (ETR) and the financial performance was measured by using Return on Assets (ROA). The sample of the study was designed based on criteria namely, the largest and most liquid companies in the Sri Lankan equity market and the sample period was restricted for the period 10 years from 2009-2018. The sample represents seventeen (17) companies which are used to calculate the S&P SL 20 index. Data was collected through the published annual reports of CSE of the selected listed companies during the selected financial time period. Co-integration regression along with Panel Dynamic Ordinary Least Squares (DOLS) statistical technique was used to explore this study. Johansen co-integration test was confirmed to run the panel DOLS. According to the result that, corporate tax planning has a negative impact on the financial performance of Sri Lankan best-performing companies listed in CSE however, which is not statistically significant at 5% level. It provides evidence that there is no significant impact from corporate tax planning strategies on the financial performance of listed companies in CSE. This evidence implies that Sri Lankan firms do not utilize the loopholes embedded in the Sri Lankan tax law efficiently. Keywords: Corporate Tax Planning, Colombo Stock Exchange, Co-integration regression, Effective Tax Rate, Financial Performance, Panel Dynamic Ordinary Least Squares, Return on Assets.