The effect of CG on tax avoidance: The moderating role of company size

This paper focuses on the impact of different corporate governance characteristics, such as board size, board independence, board gender diversity, audit committee effectiveness and institutional ownership on the tax avoidance of 500 publicly listed firms in China, while considering the moderating effect of company size. We find that larger boards lead to more tax avoidance, with board members diffusing the responsibility, but a higher level of independence and a higher female presence on the board mitigates the effect. The results show that audit committee effectiveness and a greater percent of institutional ownership significantly related to tax avoidance, consistent with the importance of strong corporate oversight. In addition, the moderating effect of company size is examined and it shows that larger companies are, generally, more prone to tax avoidance. Nevertheless, measures of effective corporate governance, for example, independent or gender diverse boards and robust audit committees can largely annihilate such tendencies. This research contributes to extant literature on corporate governance and tax management in emerging markets and offers policy recommendations to advance corporate transparency and ethical tax practices in China. These results emphasize the necessity of strong governance structures to handle corporate social responsibility issues when regulatory pressures abound in a global environment.To promote corporate transparency and ethical tax practices, regulatory bodies should mandate the inclusion of independent directors and gender diversity quotas on boards, alongside ensuring the regular and effective functioning of audit committees. These measures can counteract the propensity for tax avoidance, particularly in large firms, while fostering a corporate culture aligned with social responsibility and global regulatory standards.