The effect of ownership structure on tax avoidance with audit quality as a moderating variable: evidence from the ailing economics

Abstract

Purpose The purpose of this study is to shed light on the relationships between the different types of ownership structure and tax avoidance activities and examine the moderating effect of audit quality. Design/methodology/approach This study used secondary data from the listed companies in Amman Stock Exchange (2009–2020). To obtain additional robust findings, this study used various proxies for measuring tax avoidance (effective tax rate [ETR] and cash flow effective tax rate [CFETR]). Findings Relying on various proxies for tax avoidance, the results reveal that family and managerial ownership lead to exacerbating tax avoidance activities. Although institutional and board ownership have a positive impact on ETR and CFETR, which indicate that these type of ownership have a negative impact on tax avoidance. Audit quality also has a significant role in moderating the ownership structure–tax avoidance relationships. Besides, the results reveal that audit firm size is not merely symbolic words, but it contributes to reducing and restricting tax aggressiveness. Research limitations/implications This study has policy implications related to the policymakers in creating future tax policies to minimize and avoid tax avoidance activities. Results of this study can be used to improve awareness among the various owners and to reduce the tax avoidance practices in the developing countries. It also determines a good agenda for research in the relationships between ownership identities, audit quality and tax avoidance, which also can be used to encourage and guide future studies. Originality/value This research extends the existing literature by examining both the direct and indirect influence of ownership structure on tax avoidance in Jordanian firms by including audit quality as a moderating variable. This is a pioneering and unique study examining the joint influence of the different forms of ownership on tax avoidance. To the best of the author’s knowledge, this study is the first of its kind that examines the interaction influences between the various identities of ownership and audit quality on the tax avoidance activities in the Jordanian context.