Influence of Ownership Structure, Corporate Governance, and Culture on Tax Policy: Evidence from Malaysia

Abstract:     
This study examines whether the tax avoidance strategies that reflect special tax provisions provided to industries is determined by the ownership structure and the firm’s corporate governance mechanisms including incentives given to executives. The study is conducted in Malaysia because it implemented a tax policy to gradually reduce the corporate tax rate from 40% to 25% over a period of ten years. The sample consists of 397 Malaysian public listed companies for whom data is available for 2007-2008. The study finds that government ownership, management power, and agency issue proxies’ the free cash flows and total accruals are determinants of companies using effective tax rates (ETR) as a conduit to affect their market values. Additionally, the results show that companies that mitigate the agency conflicts with lower free cash flows and total accruals are more likely to have lower ETR, and these are also good predictors of long-term tax planning. These findings are explained in the context of making Malaysia an attractive destination for investments as well corporate taxes being a reliable source of government revenue.

Number of Pages in PDF File: 32

Keywords: Effective Tax Rates, Tax Policy, Corporate Governance

JEL Classification: F00, G30, O53

working papers series