Effect of Corporate Governance Attributes on Effective Tax Rate Among Firms Listed at the Nairobi Securities Exchange
Abstract
Corporate governance attributes have recently become vital in relation to tax matters
more than ever before. Goals of some firms is to use corporate governance mechanisms
to mitigate recurring losses and thus businesses are tempted to develop methods to
reduce their tax commitments by manipulating the tax rate that reconciles tax disclosure
items. This research sought to bring out the effect of corporate governance attributes on
the effective tax rate among companies listed on NSE, Kenya. The research established
the effect of managerial ownership structure, gender diversity and board independence
on effective tax rate among NSE listed companies. Financial leverage, liquidity and
firm size were used as the control variables in the model. Descriptive research design
was utilized. The target population was the firms on Kenya's NSE. There are 63
companies listed at the NSE but only 55 provided complete data set. Research variables
data were derived from audited company's annual financial statements from 2016 to
2020 for all 55 companies making 275 observations. Regression and correlation
analysis were used to test the study hypotheses by establishing the correlation between
corporate governance attributes and effective tax rate. The study found that managerial
ownership (β=0.032, p=0.029), gender diversity (β=0.095, p=0.000), board
independence (β=0.082, p=0.001) and firm size (β=0.103, p=0.027) had a positive and
significant relationship with effective tax rate among NSE listed firms. Leverage has a
significant negative effect on effective tax rate (β=-0.033, p=0.008) while liquidity was
not statistically significant. The outcomes too indicated R2 of 0.4836 which implied that
the selected independent variables contributed 48.36% to variations in effective tax rate.
The study recommends the following; that the management of firms listed in NSE
should ensure that the managerial ownership structure is well constituted so that this
does not limit effective tax rate, that the management of NSE listed firms ought to
ensure that there is an appropriate gender diversity to enhance smooth coordination
within the board and that listed firms regulators ensure that there is board independence
whereby majority of directors should be non-executive directors as this allows them to
make appropriate and non-partisan decisions including matters regarding tax
disclosure.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
- School of Business [1411]
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