Corporate governance theory and determinants of effective corporate tax rates: A review based on international literature

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Abstract

Against the backdrop of the current multiple crises facing the global economy and the slowdown in China’s economic recovery, the Chinese government is not only under pressure to reduce its tax revenues but also needs to adjust its tax policy to stimulate economic activities and promote economic recovery. Against this background, based on previous studies, we conducted an in-depth analysis of 89 articles selected to create a conceptual framework for analyzing the determinants of effective tax rates (ETR) using corporate governance, agency theory, and a systematic literature review (Amri et al., 2023; Kalbuana et al., 2023). A comprehensive literature analysis found that managerial ownership, institutional ownership, board of directors composition, firm size, and profitability are all related to the ETR, and profitability moderates the relationship between these independent variables and ETR. These findings are essential for the Chinese government to formulate tax policies, optimize tax administration, promote tax reform, enhance taxpayers’ awareness, and guide strategic decision-making and investment appraisal. At the same time, this study helps Chinese enterprises identify their tax burdens, make tax plans according to the situation, and reduce tax risks. It also allows investors to make more informed investment decisions.

Keywords: Effective Tax Rates, Firm Characteristics, Corporate Governance, Profitability

Authors’ individual contribution: Conceptualization — Y.H. and R.R.; Methodology — Y.H., R.R., and M.L.; Formal Analysis — Y.H., R.R., and M.L.; Data Curation — Y.H., R.R., and M.L.; Writing — Original Draft — Y.H., R.R., and M.L.; Writing — Review & Editing — Y.H., R.R., and M.L.; Supervision — R.R. and M.L.; Project Administration — Y.H. and R.R.; Funding Acquisition — Y.H. and M.L.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G3, H2, M4

Received: 29.06.2024
Accepted: 13.12.2024
Published online: 19.12.2024

How to cite this paper: He, Y., Rosli, R., & Liu, M. (2024). Corporate governance theory and determinants of effective corporate tax rates: A review based on international literature. Corporate Law & Governance Review, 6(4), 117–129. https://doi.org/10.22495/clgrv6i4p11