The relationship between tax avoidance, company characteristics and corporate governance: Evidence from Greece

Evangelos Chytis,Ioannis Georgopoulos,Zois Hortis,Stergios Tasios

doi:10.22495/cocv16i4art7

Abstract

The purpose of this paper is to research a possible relationship between corporate tax avoidance with corporate governance characteristics such as board independence, the type of auditing company and the concentration of ownership, and a range of selected financial indicators such as return on capital employed, liquidity, leverage, and company size. For this reason, the analysis was based on quantitative and qualitative data derived from the annual financial reports from a sample of 56 companies listed on the Athens Stock Exchange covering the period 2011 to 2015. As a measure of tax avoidance, the cash effective tax rate was used, while a linear regression model using the random effect method was estimated in order to examine the factors that affect it. The results of the study show that the cash effective tax rate has a statistically significant positive relationship with company size and a significant negative relationship with return on capital employed. All in all, the research shows that Greek large-sized companies show less tax avoidance, whereas in companies with a high return on capital employed the extent of tax avoidance is higher. There was no statistically significant impact of corporate governance variables on tax avoidance.

Highlights

In today’s international as well as domestic economic practice, financial and accounting scandals, extensive tax evasion and tax avoidance have been observed in several cases (Armstrong, Blouin, Jagolinzer, & Larcker, 2015; Lanis & Richardon, 2011), resulting in the emergence of stock market crises and the collapse of businesses
The purpose of this paper is to research a possible relationship between corporate tax avoidance with corporate governance characteristics such as board independence, the type of auditing company and the concentration of ownership, and a range of selected financial indicators such as return on capital employed, liquidity, leverage, and company size
This paper investigates whether elements of the institutional framework of corporate governance as well as selected financial and corporate characteristics of companies listed in the Athens Stock Exchange are linked to the amount of income tax disbursed as a percentage of pretax net profits, which is used as a tax avoidance measure (Cash Effective Tax Rate or cash effective tax rate (CETR))

Summary

Introduction

In today’s international as well as domestic economic practice, financial and accounting scandals, extensive tax evasion and tax avoidance have been observed in several cases (Armstrong, Blouin, Jagolinzer, & Larcker, 2015; Lanis & Richardon, 2011), resulting in the emergence of stock market crises and the collapse of businesses. These phenomena destabilize the economic environment, discourage investment activity and, eventually, hinder economic growth. The broad concept includes an understanding of the functioning of the overall economic system, the institutional framework, and the business finance conditions in which companies operate. Recent initiatives in the United States by the Internal Revenue Service link good corporate governance practices to lower levels of tax aggressiveness (Lanis, Richardson, & Taylor, 2015)

Objectives

Methods

Results

Conclusion