The Role of Digital Transformation in Shaping Corporate Tax Behaviour: Evidence From India

ABSTRACT Rapid advancements in digital technologies are transforming corporate operations, governance structures and strategic decision‐making, with important implications for firms' tax behaviour. Against this backdrop, this study examines the impact of digital transformation on corporate tax avoidance among non‐financial firms listed on the National Stock Exchange (NSE) of India from 2009 to 2022. Drawing on agency theory, the study further investigates whether corporate governance serves as a mediating channel through which digital transformation influences corporate tax behaviour. The findings reveal that digital transformation is negatively associated with corporate tax avoidance, suggesting that digitally transformed firms are less likely to engage in aggressive tax practices. The mediation analysis indicates that corporate governance partially mediates the relationship between digital transformation and corporate tax avoidance. Specifically, digital transformation is positively associated with corporate governance, while stronger corporate governance is associated with lower corporate tax avoidance. The results remain robust across alternative model specifications and endogeneity tests. This study contributes to the growing literature on digital transformation and corporate taxation by providing evidence that corporate governance partially mediates the relationship between digital transformation and corporate tax avoidance in an emerging market context. The findings have important implications for managers and policymakers seeking to strengthen corporate governance and improve tax compliance through digital transformation.