Does tax aggressiveness and cost of debt affect firm performance? The moderating role of political connections
Firms in emerging economies continue to suffer as a consequence of tax evasion, high cost of financing, political interference, weak governance systems, and bureaucratic institutions. In order to understand how these challenges complicate commercial activities, this study examines how tax aggressive...
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| Format: | Article |
| Language: | English |
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Taylor & Francis Group
2022-12-01
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| Series: | Cogent Economics & Finance |
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| Online Access: | https://www.tandfonline.com/doi/10.1080/23322039.2022.2132645 |
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| author | Abdullah Muhammad Arsalan Hashmi Abdul Mateen Yousuf Ali Badshah Muhammad Sikander Iqbal |
| author_facet | Abdullah Muhammad Arsalan Hashmi Abdul Mateen Yousuf Ali Badshah Muhammad Sikander Iqbal |
| author_sort | Abdullah |
| collection | DOAJ |
| description | Firms in emerging economies continue to suffer as a consequence of tax evasion, high cost of financing, political interference, weak governance systems, and bureaucratic institutions. In order to understand how these challenges complicate commercial activities, this study examines how tax aggressiveness, cost of debt, and political connections affect firm performance in Pakistan. Unlike previous research, we also explore if political connections moderate the association between (i) tax aggressiveness and firm performance and (ii) cost of debt and firm performance. Our robust empirical analysis reveals that tax aggressive firms have weaker performance while politically connected firms have better performance, ceteris paribus. Further, we find that tax aggressive firms having politically connected board members have better performance as compared to their non-connected counterparts. Similarly, firms with a high cost of debt and politically connected board members have better performance as compared to non-connected firms. Thus, we argue that political connections help connected firms in overcoming the adverse consequences of tax aggressiveness and the high cost of debt through their influence in procuring government projects, subsidies, and other benefits. Therefore, policymakers are advised to restrict politically connected board members from extending favors and concessions to connected firms. We also encourage shareholders to exercise their voting power and monitoring capabilities for mitigating agency problems inherent in politically connected firms. |
| format | Article |
| id | doaj-art-82513f3c886e4745a2ee466d2e12f848 |
| institution | OA Journals |
| issn | 2332-2039 |
| language | English |
| publishDate | 2022-12-01 |
| publisher | Taylor & Francis Group |
| record_format | Article |
| series | Cogent Economics & Finance |
| spelling | doaj-art-82513f3c886e4745a2ee466d2e12f8482025-08-20T02:34:25ZengTaylor & Francis GroupCogent Economics & Finance2332-20392022-12-0110110.1080/23322039.2022.2132645Does tax aggressiveness and cost of debt affect firm performance? The moderating role of political connectionsAbdullah0Muhammad Arsalan Hashmi1Abdul Mateen2Yousuf Ali Badshah3Muhammad Sikander Iqbal4College of Management Sciences, Karachi Institute of Economics & Technology, PakistanInstitute of Business & Health Management, Dow University of Health Sciences, PakistanCollege of Management Sciences, Karachi Institute of Economics & Technology, PakistanCollege of Management Sciences, Karachi Institute of Economics & Technology, PakistanCollege of Management Sciences, Karachi Institute of Economics & Technology, PakistanFirms in emerging economies continue to suffer as a consequence of tax evasion, high cost of financing, political interference, weak governance systems, and bureaucratic institutions. In order to understand how these challenges complicate commercial activities, this study examines how tax aggressiveness, cost of debt, and political connections affect firm performance in Pakistan. Unlike previous research, we also explore if political connections moderate the association between (i) tax aggressiveness and firm performance and (ii) cost of debt and firm performance. Our robust empirical analysis reveals that tax aggressive firms have weaker performance while politically connected firms have better performance, ceteris paribus. Further, we find that tax aggressive firms having politically connected board members have better performance as compared to their non-connected counterparts. Similarly, firms with a high cost of debt and politically connected board members have better performance as compared to non-connected firms. Thus, we argue that political connections help connected firms in overcoming the adverse consequences of tax aggressiveness and the high cost of debt through their influence in procuring government projects, subsidies, and other benefits. Therefore, policymakers are advised to restrict politically connected board members from extending favors and concessions to connected firms. We also encourage shareholders to exercise their voting power and monitoring capabilities for mitigating agency problems inherent in politically connected firms.https://www.tandfonline.com/doi/10.1080/23322039.2022.2132645tax aggressivenesscost of debtfirm performancepolitical connections |
| spellingShingle | Abdullah Muhammad Arsalan Hashmi Abdul Mateen Yousuf Ali Badshah Muhammad Sikander Iqbal Does tax aggressiveness and cost of debt affect firm performance? The moderating role of political connections Cogent Economics & Finance tax aggressiveness cost of debt firm performance political connections |
| title | Does tax aggressiveness and cost of debt affect firm performance? The moderating role of political connections |
| title_full | Does tax aggressiveness and cost of debt affect firm performance? The moderating role of political connections |
| title_fullStr | Does tax aggressiveness and cost of debt affect firm performance? The moderating role of political connections |
| title_full_unstemmed | Does tax aggressiveness and cost of debt affect firm performance? The moderating role of political connections |
| title_short | Does tax aggressiveness and cost of debt affect firm performance? The moderating role of political connections |
| title_sort | does tax aggressiveness and cost of debt affect firm performance the moderating role of political connections |
| topic | tax aggressiveness cost of debt firm performance political connections |
| url | https://www.tandfonline.com/doi/10.1080/23322039.2022.2132645 |
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