All Title Author
Keywords Abstract

Board of Directors’ Characteristics and Tax Aggressiveness: Evidence from Jordanian Listed Firms

DOI: 10.4236/tel.2019.97171, PP. 2732-2745

Keywords: Corporate Governance, Tax Aggressiveness, Board Size, Board Independence, Board Compensation

Full-Text   Cite this paper   Add to My Lib


This study aims to examine the relationship between Board of Director’s characteristics and tax aggressiveness. Taxes are considered an additional cost to the firm and its shareholders because these taxes reduce the available cash flow. Firms tend to employ different tax aggressiveness techniques. Aggressive tax planning or strategic tax behaviors are activities generally designed to reduce tax liability that includes Tax evasion, Tax evasion and legitimate saving of taxes. This study is the first in Jordan which tests the relationship between Board of Director’s characteristics (Board Duality, Board Composition and Board Independence) on tax aggressiveness. Based on a sample of 140 Jordanian firms during the period 2013-2017, this study used regression analysis to examine the effect of board composition, board independence, CEO duality, return on assets (ROA) and firm size on the tax aggressiveness. The study found that there is a negative relationship between board composition and board independence from one side, and the tax aggressiveness from the other side. Furthermore, the study found that there is a positive relationship between board duality and tax aggressiveness. Finally, both the return on assets (ROA) and the firm size variables, which were included as control variables, were found to be positively related to the tax aggressiveness.


[1]  Berle, A. and Means, G. (1932) The Modern Corporation and Private Property. Macmillan, New York.
[2]  Coase, R. (1937) The Nature of the Firm. Economica, 4, 386-405.
[3]  Jensen, M. and Meckling, W. (1976) Theory of the Firm: Managerial Behaviors, Agency Cost and Ownership Structure. Journal of Financial Economics, 3, 305-360.
[4]  Williamson, O. (1975) Markets and Hierarchies: Analysis and Antitrust Implications. Free Press, New York.
[5]  Williamson, O. (1985) The Economic Institutions of Capitalism. Free Press, New York.
[6]  Grossman, S. and Hart, O. (1986) The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration. Journal of Political Economy, 94, 691-719.
[7]  Hart, O. and Moore, J. (1990) Property Rights and the Nature of the Firm. Journal of Political Economy, 98, 1119-1158.
[8]  Cohen, J., Krisnamoorthy, G. and Wright, A.M. (2002) Corporate Governance and the Audit Process. Contemporary Accounting Research, 194, 573-594.
[9]  Alchian, A. and Demsetz, H. (1972) Production, Information Costs and Economic Organization. American Economic Review, 62, 777-795.
[10]  Maali, B.M. and Al-Attar, A. (2017) Corporate Disclosure and Cultural Values: A Test for Multinational Corporations. The Journal of Developing Areas, 51, 251-265.
[11]  Li, H.Z., Terjesen, S. and Umans, T. (2018) Corporate Governance in Entrepreneurial Firms: A Systematic Review and Research Agenda. Small Business Economics, 1-32.
[12]  Ibrahim, M.H. and Law, S.H. (2014) Social Capital and CO2 Emission-Output Relations: A Panel Analysis. Renewable and Sustainable Energy Reviews, 29, 528-534.
[13]  Khurana, I.K. and Moser, W.J. (2012) Institutional Shareholders’ Investment Horizons and Tax Avoidance. The Journal of the American Taxation Association, 35, 111-134.
[14]  Mahenthiran, S. and Kasipillai, J. (2012) Influence of Ownership Structure and Corporate Governance on Effective Tax Rates and Tax Planning: Malaysian Evidence. Australian Tax Forum, 27, 941-969.
[15]  Landry, S., Deslandes, M. and Fortin, A. (2013) Tax Aggressiveness, Corporate Social Responsibility and Ownership Structure. Journal of Accounting, Ethics and Public Policy, 14, 611-645.
[16]  Salihu, I.A. (2014) Investigating the Determinants of Corporate Tax Avoidance among Malaysian Public Listed Companies. Doctoral Dissertation, International Islamic University Malaysia, Kuala Lumpur.
[17]  Hanlon, M. and Heitzman, S. (2010) A Review of Tax Research. Journal of Accounting and Economics, 50, 127-178.
[18]  Minnick, K. and Noga, T. (2010) Do Corporate Governance Characteristics Influence Tax Management? Journal of Corporate Finance, 16, 703-718.
[19]  Yeung, C.T. (2010) Effects of Corporate Governance on Tax Aggressiveness. An Honors Degree Project, Hong Kong Baptist University, Hong Kong.
[20]  Scholes, M., Wolfson, M., Erickson, M., Maydew, E. and Shevlin, T. (2005) Taxes and Business Strategy: A Planning Approach. 3rd Edition, Pearson Prentice Hall, Upper Saddle River.
[21]  Schulze, W.S., Lubatkin, M., Dino, R. and Buchholtz, A. (2001) Agency Relationships in Family Firms: Theory and Evidence. Organization Science, 12, 99-116.
[22]  Jaradat, M.S. (2015) Corporate Governance Practices and Capital Structure: A Study with Special Reference to Board Size, Board Gender, outside Director, and CEO Duality. International Journal of Economics, Commerce and Management, 3, 264-273.
[23]  Huseynov, F. and Klamm, B.K. (2012) Tax Avoidance, Tax Management and Corporate Social Responsibility. Journal of Corporate Finance, 18, 804-827.
[24]  Esa, E. and Mohd Ghazali, N.A. (2012) Corporate Social Responsibility and Corporate Governance in Malaysian Government-Linked-Companies. Corporate Governance, 12, 292-305.
[25]  Zemzem, A. and Ftouhi, K. (2013) The Effects of Board of Directors’ Characteristics on Tax Aggressiveness. Research Journal of Finance and Accounting, 4, 140-147.
[26]  Gomes, A.P.M. (2016) Corporate Governance Characteristics as a Stimulus to Tax Management. Revista Contabilidade and Financas, 27, 149-168.
[27]  Bosun-Fakunle, Y.F. and Josiah, M. (2019) Board of Directors Characteristics and Tax Aggressiveness. International Journal of Management Science Research, 5, 133-152.
[28]  Desai, M.A. and Dharmapala, D. (2006) Corporate Tax Avoidance and High-Powered Incentives. Journal of Financial Economics, 79, 145-179.
[29]  Chen, S., Chen, X., Cheng, Q. and Shevlin, T. (2010) Are Family Firms More Tax Aggressive than Non-Family Firms? Journal of Financial Economic, 95, 41-61.
[30]  Hanlon, M. and Slemrod, J. (2009) What Does Tax Aggressiveness Signal? Evidence from Stock Price Reactions to News about Tax Shelter Involvement. Journal of Public Economics, 93, 126-141.
[31]  Li, Y.W., Gong, M.F., Zhang, X.-Y. and Koh, L. (2018) The Impact of Environmental, Social, and Governance Disclosure on Firm Value: The Role of CEO Power. The British Accounting Review, 50, 60-75.
[32]  Lanis, R. and Richardson, G. (2011) The Effect of Board of Director Composition on Corporate Tax Aggressiveness. Journal of Accounting and Public Policy, 30, 50-70.
[33]  Owens, J.P. (2008) Good Corporate Governance: The Tax Dimension. Springer, New York.
[34]  Jensen, M. (1993) The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems. Journal of Finance, 48, 831-881.
[35]  Peng, M.W. (2004) Outside Directors and Firm Performance during Institutional Transitions. Strategic Management Journal, 25, 453-471.
[36]  Chen, K.P. and Chu, C.Y.C. (2006) Internal Control vs. External Manipulation: A Model of Corporate Income Tax Evasion. RAND Journal of Economics, 36, 151-164.
[37]  Shaukat, A., Qiu, Y. and Trojanowski, G. (2016) Board Attributes, Corporate Social Responsibility Strategy, and Corporate Environmental and Social Performance. Journal of Business Ethics, 135, 569-585.
[38]  Bai, C.E., Liu, Q., Lu, J., Song, F.M. and Zhang, J.X. (2004) Corporate Governance and Market Valuation in China. Journal of Comparative Economics, 32, 599-616.
[39]  Landi, G. and Sciarelli, M. (2018) Towards a More Ethical Market: The Impact of ESG Rating on Corporate Financial Performance. Social Responsibility Journal, 15, 11-27.
[40]  Lin, B., Lu, R. and Zhang, T. (2012) Tax-Induced Earnings Management in Emerging Markets: Evidence from China. Journal of the American Taxation Association, 34, 19-44.
[41]  Yermack, D. (1996) Higher Market Valuation of Companies with a Small Board of Directors. Journal of Financial Economics, 40, 85-211.
[42]  Core, J., Holthausen, R. and Larcker, D. (1999) Corporate Governance, Chief Executive Officer Compensation, and Firm Performance. Journal of Financial Economics, 51, 371-406.
[43]  Beasley, M.S. (1996) An Empirical Analysis of the Relation between the Board of Director Composition and Financial Statement Fraud. The Accounting Review, 71, 443-465.
[44]  Fama, E.F. and Jensen, M.C. (1983) Separation of Ownership and Control. Journal of Law and Economics, 26, 301-325.
[45]  Hu, H.W., Tam, O.K. and Tan, M.G.S. (2010) Internal Governance Mechanisms and Firm Performance in China. Asia Pacific Journal of Management, 27, 727-749.
[46]  Hermalin, B.E. and Weisbach, M.S. (2003) Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature. Economic Policy Review, 9, 7-26.
[47]  Peasnell, K.V., Pope, P.F. and Young, S. (2005) Board Monitoring and Earnings Management: Do Outside Director’s Influence Abnormal Accruals? Journal of Business Finance and Accounting, 32, 1311-1346.
[48]  Chang, Y.K., Oh, W.Y., Jung, J.C. and Lee, J.Y. (2012) Firm Size and Corporate Social Performance: The Mediating Role of Outside Director Representation. Journal of Leadership & Organizational Studies, 19, 486-500.
[49]  Bouslah, K., Linares-Zegarra, J., M’Zali, B. and Scholtens, B. (2018) CEO Risk-Taking Incentives and Socially Irresponsible Activities. The British Accounting Review, 50, 76-92.
[50]  Qiu, H.Y. and Yao, S.H. (2009) Share Merger Reform, Corporate Governance and Firm Value in China. In: 22nd Australasian Finance and Banking Conference, University of Hong Kong Working Paper, Hong Kong, 1-44.
[51]  Bhagat, S. and Bolton, B. (2008) Corporate Governance and Firm Performance. Journal of Corporate Finance, 14, 257-273.
[52]  Ibrahim, N.A. and Angelidis, J.P. (1995) The Corporate Social Responsiveness Orientation of Board Members: Are There Differences between Inside and Outside Directors? Journal of business Ethics, 14, 405-410.
[53]  Klein, A. (2006) Audit Committee, Board of Director Characteristics, and Earnings Management. NYU Working Paper No. 2451/27450, 1-39.
[54]  Firth, M., Fung, P.M.Y. and Rui, O.M. (2007) How Ownership and Corporate Governance Influence Chief Executive Pay in China’s Listed Firms? Journal of Business Research, 60, 776-785.
[55]  Sarkar, J., Sarkar, S. and Sen, K. (2008) Board of Directors and Opportunistic Earnings Management: Evidence from India. Journal of Accounting, Auditing and Finance, 23, 517-551.
[56]  Maali, B.M. and Jaara, O.O. (2014) Reality and Accounting: The Case for Interpretive Accounting Research. International Journal of Accounting and Financial Reporting, 4, 155.
[57]  Li, J.Y. (2007) Fundamental Enterprise Income Tax Reform in China: Motivations and Major Changes. Comparative Research in Law and Political Economy. Research Report No. 33.
[58]  Manzon, G. and Plesko, G. (2002) The Relation between Financial and Tax Reporting Measures of Income. Tax Law Review, 55, 175-214.
[59]  Hanlon, M. and Shevlin, T. (2002) The Tax Benefits of Employee Stock Options: The Accounting and Implications for Research. Accounting Horizons, 16, 1-16.
[60]  Armstrong, C.S., Blouin, J.L. and Larcker, D.F. (2012) The Incentives for Tax Planning. Journal of Accounting and Economics, 53, 391-411.
[61]  Gaur, S.S., Bathula, H. and Singh, D. (2015) Ownership Concentration, Board Characteristics and Firm Performance: A Contingency Framework. Management Decision, 53, 911-931.
[62]  Singh, S., Tabassum, N., Darwish, T.K. and Batsakis, G. (2018) Corporate Governance and Tobin’s Q as a Measure of Organizational Performance. British Journal of Management, 29, 171-190.
[63]  Martin, G.P., Wiseman, R.M. and Gomez-Mejia, L.R. (2019) The Interactive Effect of Monitoring and Incentive Alignment on Agency Costs. Journal of Management, 45, 701-727.


comments powered by Disqus

Contact Us


微信:OALib Journal