CORPORATE GOVERNANCE AND TAX AVOIDANCE IN THE LISTED COMPANIES OF BANGLADESH: A CONCEPTUAL OVERVIEW

Abstract

Tax revenue provides as a basis for making government budget and long-term development plan of an economy. In addition, corporate tax revenue has an association with the social wellbeing initiatives to be undertaken by the government. However, agency theory argues that corporate managers could take on tax avoidance (TA) initiatives for their opportunistic rent extractions from the benefits that come up through tax avoidance. Moreover, tax avoidance is a sustainability problem since it does not discharge morale and communal demands of the society. The agency costs and irresponsible social behaviour that come up from corporate tax avoidance (CTA) have an adverse association to firm value. Tax avoidance is not a type of breach of the law; it takes the benefit from a legal vacuum i.e. the formal mistreatment of the law. Corporate managers could undertake tax avoidance initiatives through taking benefit from the loopholes of existing tax laws. Therefore, corporate governance mechanisms (CGMs) could play an important function to shape TA behaviour of the firm. This paper attempts to integrate relevant empirical researches and literature to expand the intended potentials of CGMs to limit the TA behaviour of the listed firms in Bangladesh. Moreover, the paper will endow with theoretical base for empirical study to extend agency theory justification on CGMs and CTA relationship. Furthermore, as existing literature presents inconsistent and fewer evidence that effort to look at the effect of CGMs on CTA, this paper proposes and shows promising propositions for potential empirical investigation.