Measuring Internal And External Corporate Governance Mechanisms On Companies Tax Planning: Evidence From Shariah-Compliant Companies In Malaysia

There is an increased attention towards a need for good corporate governance which will lead to better firm performance. Hence, this study attempts to examine whether good corporate governance mechanisms can result in better tax planning strategies, thus resulting in lower corporate effective tax rate (ETR) paid by companies. The main objective of this study is to examine the relationship between internal and external corporate governance mechanisms towards tax planning involvement. A micro backward-looking approach is used, comprising of a balanced panel data for 397 listed companies during the years 2007-2010. This study examines whether there is any impact as a result of a revision of the Malaysian Code of Corporate Governance (MCCG) and active shareholder activism in recent years towards greater mechanism of corporate governance. Thus, the study would provide some solution for the agency problems that exist between the management and shareholders, particularly in tax related matters. Narrowing the sample to Shariah-compliant companies and taking into consideration the government-linked companies (GLCs) classifications, the empirical results reveal that internal and external corporate governance mechanism does not influence corporate tax planning. Hence, the evidence implies that less interference among the top management in the companies’ tax planning activities.