CEO power and corporate tax avoidance in emerging economies: does ownership structure matter?

Abstract

PurposeThe purpose of this paper is to study how CEO power impact corporate tax avoidance. In particular, this paper aims to empirically examine the moderating impact of institutional ownership on the relationship between CEO power and corporate tax avoidance.Design/methodology/approachThe multivariate regression model is used for hypothesis testing using a sample of 308 firm-year observations of Tunisian listed companies during the 2013-2019 period.FindingsThe results show that CEO power is negatively associated with corporate tax avoidance and that institutional ownership significantly accentuates the CEO power’s effect on corporate tax avoidance. This implies that CEOs, when monitored by institutional investors, behave less opportunistically resulting in less tax avoidance.Practical implicationsOur findings have significant implications for managers, legislators, tax authorities and shareholders. They showed that CEO duality, tenure and ownership can mitigate the corporate tax avoidance in Tunisian companies. These findings can, hence, guide the development of future regulations and policies. Moreover, our results provide evidence that owning of shares by institutional investors is beneficial for reducing corporate tax avoidance. Thus, policymakers and regulatory bodies should consider adding regulations to the structure of corporate ownership to promote institutional ownership and consequently control corporate tax avoidance in Tunisian companies.Originality/valueThis study differs from prior studies in several ways. First, it addressed the emerging market, namely the Tunisian one. Knowing the notable differences in institutional setting and corporate governance structure between developed and emerging markets, this study will shed additional light in this area. Second, it proposes the establishment of a moderated relationship between CEO power and corporate tax avoidance around institutional ownership. Unlike prior studies that only examined the simple relationship between CEO power and corporate tax avoidance, this study went further to investigate how institutional ownership potentially moderates this relationship.