The effect of corporate tax avoidance strategies in Malaysia through financial characteristics and corporate governance mechanisms

Corporate tax is one of the fundamental sources of revenue for governments. This study investigates the subject of corporate tax avoidance, examining the relationship between certain financial attributes of a company—namely profitability and leverage—and corporate governance attributes, including board size, director competency, the presence of female directors, director remuneration, and CEO duality. The focus is on companies listed on the main market of Bursa Malaysia. The study employs panel data from 300 publicly listed Malaysian companies, specifically from their annual reports and financial databases for the years 2021, 2022, and 2023. The investigation utilizes panel data regression with Panel Corrected Standard Errors to account for autocorrelation and heteroscedasticity, based on agency theory and tax planning theory. The results indicate a significant negative relationship between profitability—measured by return on equity and the effective tax rate (β = -0.001, p = 0.000)—and the effective tax rate. Conversely, leverage shows a significant positive association with the effective tax rate (β = 0.175, p = 0.000). These findings suggest that key financial and governance factors significantly influence firms’ tax burdens. Policymakers and corporate regulators aiming to promote ethical tax governance in developing markets can derive valuable insights from these results.