Mediating and moderating function of corporate governance on the relationship between tax planning and tax disclosure

This study analyzes the moderating, mediating, and direct effects of corporate governance (CG) proxy mechanisms on the relationship between tax planning (TP), measured by effective tax rate components, and tax disclosure (TD). We tested the hypotheses using a 4-step hierarchical regression with Malaysian-listed non-financial companies using a balanced sample of 858 observations. We found that companies positively assessed their TP activities. Inspection of the implications of CG mechanisms as moderation on TP-TD association displayed the absence of an important constant correlated to any of the interactive variables. This makes it difficult to understand the nature of this relationship. The results illustrate the high and significant mediated impact of board compensation (BCOMS) on the TP-TD association. We further studied the sensitivity of the results and the outcomes were examined for the robustness and strength of the model specification using OLS effect estimators and the absence of TP-related factors. These test findings show no effect on the TP-TD association. This study shows that firms try to avoid taxation as far as possible by disclosing relevant tax information. These results suggest that firms express a trade-off between tax advantages and TD when choosing their TP. It meaningfully subsidizes the argument about TD concerning “comply-or-explain”, as the CG Code proposes.