E-Thesis 874 views
Essays on Corporate Governance, and Tax Avoidance: A study of the UK listed Firms / MODAWI FADOUL
Swansea University Author: MODAWI FADOUL
DOI (Published version): 10.23889/SUthesis.59572
Abstract
This thesis empirically investigates three important topics: corporate governance, CEO managerial incentives, and tax avoidance in the context of FTSE 350 listed firms on London Stock Exchange (LSE). First Topic – Chapter 3 examines the impact of CEO managerial incentives in taking extreme risky dec...
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Swansea
2022
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| Institution: | Swansea University |
| Degree level: | Doctoral |
| Degree name: | Ph.D |
| Supervisor: | Boubaker, Sabri ; Xicheng, Liu |
| URI: | https://cronfa.swan.ac.uk/Record/cronfa59572 |
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| Abstract: |
This thesis empirically investigates three important topics: corporate governance, CEO managerial incentives, and tax avoidance in the context of FTSE 350 listed firms on London Stock Exchange (LSE). First Topic – Chapter 3 examines the impact of CEO managerial incentives in taking extreme risky decisions and the exploding effects on tax avoidance. Unresolved agency problems relentlessly foster entrenchment and significantly explain greater rent extraction. Our results consistently indicate that higher CEO equity incentives (proxy Vega) is positively and significantly associated with tax avoidance. Findings provide evidence that CEOs play a prominent role in corporate tax decisions and opportunistically set the tone for tax avoidance. We also find that the effect of CEOs' incentives (proxy Delta) is positive and statistically significant. This paper extends the literature about the impact of CEO equity incentives on firm tax avoidance in the context of UK public companies. It further contributes to elucidate on how CEO equity incentives shape firm behaviour, affect corporate short- and long-term investments, and channel important tax loopholes decisions. Standing as the main determinant of corporate tax avoidance, the analysis of CEOs’ excessive risk-taking behaviour stems as a hot topic, not yet explored in the UK mainstream literature. Second Topic – Chapter 4 tests the effect of tax avoidance on firm performance, using a matched sample of UK firms listed on LSE over 1999–2019. We document a significant positive relationship between tax avoidance and firm financial performance proxied first by Tobin’s Q. We also find that Return on Assets (ROA) exhibits a strong positive relationship with Generally Accepted Accounting Principles Effective Tax Rate (GAAP ETR) but is insignificant with CASH ETR. The significant positive correlation with both performance metrics persists when we account for potential endogeneity concerns using propensity score matching, and first- and two-least-squares approaches. Furthermore, we find that Return on Equity (ROE) is negatively associated with tax avoidance. We thus conclude that the effect is more centric when testing the impact on ROA and Tobin’s Q, indicating that UK firms tend to undervalue their ROA to avoid corporation tax. Our results are consistent with the view that firm tax avoidance is a medium to deviate financial resources and to orient them from the state to shareholders.Third Topic – Chapter 5 investigates the effect of product market competition on corporate tax avoidance by relying on firm-level data for FTSE 350 listed firms on LSE. Our findings indicate that low competition increases product market competition, which increases firm tax aggressiveness, and leads to more significant tax reductions. Additional analysis shows that the effect of product market competition on tax avoidance is more pronounced for firms with higher exposure to competition, deep financial distress, and weaker governance practices. Centrally, product market competition is negatively affected in the spectrum of poorly governed firms. |
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| College: |
Faculty of Humanities and Social Sciences |