Corporate Governance Practices and Tax Planning among Manufacturing and Allied Firms Listed at the Nairobi Securities Exchange, Kenya
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Date
2022
Authors
Awuor, Ochola, Saphina
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
The manufacturing and allied sector in Kenya has been growing at a slower rate than the
economy and the Gross Domestic Product has been deteriorating with time. From the year
2010, the sector has witnessed some large manufacturing firms either relocating or
restructuring their operations owing to heavy taxation and unfavorable operating
environment. Taxes represent a significant cost to firms; it affects a firm’s profitability
and almost all financing decisions hence actions designed for reducing corporate tax
burden through tax planning are regarded highly. The separation of ownership from
control in public listed companies means that tax planning occurs within agency
framework. Corporate governance practices play key roles in the management of public
companies’ affairs with the overall objective of wealth maximization. The Capital Market
Authority has continuously issued corporate governance guidelines for public institutions
in recognition of the guideline’s contribution in the effective management of these
companies and also in response to the changing business environment alongside the
motivation to position Kenyan local code of ethics to worldwide unparalleled practices
and to advance institutional strengthening for listed companies. Despite the
Manufacturing sector registering stagnation and declining profits for the last five years,
there is reawakened stake in the sector through the Big 4 Agenda which seeks to increase
the Gross Domestic Product input of the sector to fifteen percent by 2022. The purpose of
this investigation was to assess the influence of corporate governance practices on tax
planning among manufacturing and allied firms listed on the Nairobi Stock Exchange,
Kenya. The study's main objective was to examine how board size, independence,
external audit quality, and institutional ownership influenced tax planning among
manufacturing and allied firms listed on Kenya's Nairobi Securities Exchange. The study
further examined the moderating influence of firm size on the relationship between the
corporate governance practices and tax planning. This study was based on Agency
Theory, Stakeholder Theory, Upper Echelons Theory, Resource Dependency Theory and
Tax Planning Theory. The target population consisted of nine manufacturing and allied
firms listed at the NSE. Census approach was employed to obtain secondary panel data
from 2010 to 2019. Descriptive analysis obtained an ETR higher than the statutory tax
rate whereas regression analysis results revealed that: board size had an insignificant
positive influence, board independence had significant positive influence, external audit
quality had an insignificant positive influence while institutional ownership had
significant negative influence on tax planning among manufacturing and allied companies
quoted at the Nairobi Securities Exchange, Kenya. It was also observed that firm size had
a positive moderating effect on the relationship between board size, board independence,
external audit quality, institutional ownership and tax planning among the firms under the
study
Description
A Thesis Submitted to the School of Business in Partial Fulfillment of the Requirements for the Award of Degree of Master of Science in Finance of Kenyatta University, April 2022
Keywords
Corporate Governance, Practices, Tax Planning, Manufacturing, Allied Firms Listed, Nairobi Securities Exchange, Kenya