Dynamics of Corporate Governance and Tax Avoidance in Pakistan Family-Owned Firms

Abstract

This study investigates the causal relationship between Corporate Governance (CG) and Tax Avoidance (TA) in family-owned firms listed on the Pakistan Stock Exchange (PSX) over the period from 2013 to 2022. Data is collected from the PSX official website and annual reports to examine CG proxies and TA relationships employing a random effects model while accounting for heteroskedasticity to test various hypotheses. The results reveal that specific aspects of corporate governance significantly influence tax avoidance practices in family-owned firms. Board size, CEO duality, institutional shareholding, and insider shareholding exhibit an inverse relationship with tax avoidance. This suggests that family-owned firms with larger boards, separate CEO and chairperson roles, increased institutional investor presence, and reduced insider ownership tend to engage in less tax avoidance. The study highlights the implications of these findings for corporate governance and tax avoidance strategies and underscores the importance of promoting transparency and ethical financial practices in family-owned firms.