The Impact of Tax Avoidance on Earnings Management: The Moderating Role of Board Governance Characteristics

The study aims to investigate the impact of tax avoidance (TA) on earnings management practices (EM). The current research also investigates the moderating role of board governance characteristics on this relationship in the Egyptian context. The sample incorporates all the non-financial companies included in the Egyptian Stock Exchange between 2017 and 2021. The final sample comprises 120 enterprises from 12 industries, with 600 observations. Statistical analysis employs fixed effects regression, pooled OLS, and GMM estimations to test the proposed hypotheses. We found a significant positive impact of TA on the level of EM. Further, board gender diversity (BGD) and board independence (BIND) were found to have a negative moderating impact as they alleviate the effect of TA on the level of EM. Finally, CEO duality (CEOD) was found to have no moderating impact. To the authors’ knowledge, this is the first study examining how board governance characteristics moderate and influence the level of EM in emerging markets. This adds new insights to the TA and EM literature, as previous research mainly focused on the direct effects of BGD, BIND, and CEOD on EM levels. The current study provides fresh evidence from an emerging market context.