Effect of Corporate Governance on Tax Planning of Commercial and Service Firms Listed at the Nairobi Securities Exchange

Abstract

In the recent past, research studies have been conducted that give a picture of why some companies avoid taxes more than others. The earliest studies point to characteristics of the firm as proxies for opportunities, incentives and resources for tax planning to explain why some companies more than others do avoid or minimizes tax liability. Recently studies conducted have expounded on this research area by investigating the role played by agency conflicts on corporate tax planning behavior. This research set to determine the how corporate governance influences corporate tax planning of commercial and service firms at the NSE. All 11 commercial and service organizations listed formed population of this work. Independent variants in this research were corporate governance operationalized as the size of the board members, independence of the team and the number of meetings. Control variables were profitability represented by return on equity per year, managerial ownership represented by the percentage of shares held by management and debt financing given by the ratio of total debt to total assets in an year. The response variable was corporate tax planning given by effective tax rate. A five year period, January 2014 and December 2018, was studied through gathering of secondary data. Descriptive research design method was employed while multiple linear regressions model was applied in analysis of the association between the variables. The data was analyzed by use of SPSS version 22. An R-Square value of 0.605 was produced from the study results which meant that a large percentage, 60.5%, of corporate tax planning of commercial and service organizations at the stock exchange can be explained by the six predictor variables as 39.5 of disparity of corporate tax planning rate was related to variables that were not part of this study. Findings of ANOVA highlight how F was important at the 5% level, showing p=0.000. Henceforth, this case showed that the model was appropriate in explaining the correlations between the differing variants. In addition, it was revealed that profitability had a significant effect on tax planning while board size, board independence, board meetings and managerial ownership produced negative but insignificant findings for this research work. Finally, debt financing produced positive and not statistically influence on corporate tax planning among commercial and service organizations listed at the NSE. This research recommends that strategies should be set to increase profitability of firms, because it has a statistically substantial influence on corporate tax planning among commercial and service firms at the NSE.