Ownership Structure and Corporate Tax Avoidance: Does Audit Quality and Firm Size Matter?

Abstract

This study investigates the direct and indirect relationships between different dimensions of ownership structure (foreign ownership, managerial ownership, ownership concentration and cross-ownership) and corporate tax avoidance (CTA). It examines the mediating effect of audit quality (AQ) and the moderating influence of firm size (FS) on these relationships. The study employs a panel data analysis of non-financial firms listed on the Ghana Stock Exchange from 2010 to 2023. A structural equation modeling approach is used to test the mediation and moderation hypotheses. The analysis incorporates various econometric techniques to address potential endogeneity concerns and ensure the robustness of the findings. The results indicate that foreign ownership has a significant positive direct effect on CTA, while managerial ownership, ownership concentration, and cross-ownership do not directly influence CTA. The study finds that managerial ownership is positively associated with AQ, while the other ownership dimensions do not significantly impact AQ. Importantly, the study reveals that the relationship between ownership structures and CTA is fully mediated by AQ. Furthermore, firm size is found to significantly moderate the effects of foreign ownership, ownership concentration, and cross-ownership on CTA. The findings provide valuable insights for policymakers and corporate governance regulators. The results highlight the critical role of audit quality in translating ownership influence into tax compliance outcomes. They also emphasize the importance of considering firm-level contextual factors, such as size, when examining the ownership-tax avoidance nexus. These insights can inform the development of targeted policies and regulations to enhance corporate tax transparency and accountability. This study contributes to the existing literature by providing a comprehensive, nuanced understanding of the complex relationships between ownership structure, audit quality, firm size, and corporate tax avoidance in an emerging market context. The findings expand the current knowledge on the mechanisms through which ownership characteristics shape tax avoidance practices.