The impact of ownership structure on corporate tax avoidance with corporate social responsibility as mediating variable
| DOI | https://doi.org/10.1108/JFC-07-2021-0152 |
| Published date | 30 August 2021 |
| Date | 30 August 2021 |
| Pages | 836-852 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial crime |
| Author | Anissa Dakhli |
The impact of ownership
structure on corporate tax
avoidance with corporate social
responsibility as mediating
variable
Anissa Dakhli
Department of Accounting, University of Sousse, Sousse, Tunisia
Abstract
Purpose –The purpose of this paper is to investigate the direct and indirect relationship between
institutional ownership and corporate tax avoidance using corporate social responsibility (CSR)asa
mediatingvariable.
Design/methodology/approach –This study uses panel data set of 200 French firms listed during the
2007–2018 period. The direct and indirect effects between managerial ownership and tax avoidance were
tested by using structuralequation model analysis.
Findings –The results indicate thatinstitutional ownership negatively affects tax avoidance.The greater
the proportion of the institutionalownership, the lower the likelihood of tax avoidance usage.From the result
of the Sobel test, this study indicated that CSR partially mediates the effect of institutional ownership on
corporatetax avoidance.
Practical implications –The findings have some policy and practical implications that may help
regulators in improvingthe quality of transactions and in achieving more efficientmarket supervision. They
recommend to the governmentto add regulations and restrictions to the structureof corporate ownership to
controlcorporate tax avoidance in French companies.
Originality/value –This study extends the existing literatureby examining both the direct and indirect
effect of institutional ownership on corporate tax avoidance in French companies by including CSR as a
mediatingvariable.
Keywords Corporate social responsibility, Tax avoidance, Institutional ownership,
French companies
Paper type Research paper
1. Introduction
Tax avoidance has attracted growingattention in the recent research literature (Kovermann
and Velte, 2019;Zolotoy et al.,2021;Alkurdi and Mardini, 2020;Khan et al.,2017;Jiang et al.,
2021;Bauer et al.,2018;Zeng, 2019;Mouakhar et al., 2020;Rahman and Leqi, 2021).
Corporate tax avoidance is commonly defined as actions that reduce a firm’s taxes relative
to its pre-tax accounting income (Christensen et al.,2015;Hanlon and Heitzman, 2010). In
fact, taxes have been considered a material cost for companies and minimize the cash flow
available for their owners (Suranta etal.,2020). Therefore, it is a stimulant for companies to
reduce taxes expense through taxavoidance strategies (Chen et al.,2010). In this regard, tax
avoidance is an effort undertaken legally and safely by companies without violating the
applicable taxation provisions, as methods and techniques used are to take advantage of
weaknesses containedwithin the tax laws and regulations (Napitupulu et al., 2019).
JFC
29,3
836
Journalof Financial Crime
Vol.29 No. 3, 2022
pp. 836-852
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-07-2021-0152
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1359-0790.htm
Prior studies have examined companies’characteristics as determining factors in
decision-makingto undertake tax avoidance, namely, firm size (Prabowo, 2020;Jarbouiet al.,
2020;Mouakhar et al.,2020;Riguen et al., 2021), liquidity level(Sari and Tjen, 2017;Dharma
and Ardiana, 2016;Kalbuana et al., 2020;Swingly and Sukharta, 2015), profitability level
(Mafrolla and D’Amico, 2016;Salhi et al., 2019;Rahman and Leqi, 2021) and ownership
structure (Fern
andez-Rodríguez et al.,2019;Zolotoy et al.,2021;Khan et al., 2017;Jiang et al.,
2021;Ying et al.,2017;Bird and Karolyi, 2017;Widyastuti, 2018). In this regard, ownership
structure plays an important role in firms’decisions on tax avoidance (Kovermann and
Velte, 2019). As different owners may have different motivations and time horizons for
corporate decisions (Raimo et al., 2020;Hoskisson et al.,2002), it is expected that they will
have different attitudes toward tax avoidance practices (Lietz, 2013). In particular, the
relationship between institutional ownership (INST) and corporate tax avoidance has been
largely examined but with mixed results. Some prior studies argued that INST promotes
corporate tax avoidance behavior (Alkurdi and Mardini, 2020;Cahyono et al.,2016;Leipälä,
2017;Ngadiman and Puspitasari,2017). In this vein, Khan et al. (2017) showed that increases
in INST are associated with increases in tax avoidance by using tax shelters.More recently,
Jiang et al. (2021) concluded that the increase in institutional investors’shareholdings is
likely to promote tax avoidancein Chinese companies. They explained their findings by the
characteristics of institutionalinvestors who pay more attention to the short-term profits of
the enterprise, thus creating certain incentives for the enhancement of corporate tax
avoidance. Aiming to examine the effect of corporate governance mechanisms on tax
avoidance in banking companies listed on the Indonesia Stock Exchange, Sunarto et al.
(2021) revealed that INST positively affects tax avoidance. However, an opposing view
suggests that INST suppresses corporate tax avoidance behavior. INST is seen as a key
mechanism of corporate governance that exercise effective monitoring of management
decisions related to tax avoidance (Gillan and Starks, 2003) to reduce agency problems and
to monitor manager’s activities (Graham and Tucker, 2006). For instance, Ying et al. (2017),
Bird and Karolyi (2017) and Widyastuti(2018) showed that corporations that are owned by a
board with a high proportionof institutional investors show an increase in involvementwith
tax avoidance techniques.More recently and based on a sample of Jordanian firms, Alkurdi
and Mardini (2020) argued thattax avoidance is negatively related to INST.
Nevertheless, prior studies examining the impact of INST on corporate tax avoidance
have been limited to investigate the direct association and have not considered the indirect
analysis. Particularly, they did not analyze the mediating effect of other structural and
contextual characteristics of the company that has significant influences on organizational
decision-making, motivation and orientation. Hence, it is interesting to study what prior
researchers relatively neglectedand gain new insights into the INST-tax avoidance link. In
this perspective, the present study aims to investigate the mediating effect of corporate
social responsibility (CSR) on the relationship between INST and tax avoidance in French
firms. This researchseeks to address the following research questions:
Q1. How does INST affect corporatetax avoidance?
Q2.DoesCSR mediate the relationship between INST and tax avoidance?
To answer these research questions, thestructural equation modeling is applied for a panel
data set of 200 French non-financial listed firms over the period 2007 to 2018. The results
show that INST affects negativelycorporate tax avoidance and that CSR mediates partially
this effect. This study claimsoriginality insofar as it proposes the establishment of dynamic
links between ownership structureand tax avoidance around CSR. Unlike prior studies that
Impact of
ownership
structure
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