Corporate tax avoidance: Evidence from Vietnamese non-financial listed firms : A thesis submitted in partial fulfilment of the requirements for the Degree of Doctor of Philosophy at Lincoln University

Abstract

Vietnam, a transition economy, has moved from a centrally–planned economy to a market-oriented economy since the Doi Moi reform in 1986. With remarkable changes in the economy following the Doi Moi reform, Vietnam has become one of the fastest-growing developing economies in the world and is an investable market that caught the attention of many investors (World Bank, 2020). The transformation, however, has also brought new challenges, especially corporate governance practices and corporate income tax issues. The widespread use of tax incentives to promote investment and growth have recently resulted in slowing revenue growth. The light penalties and pervasive tax corruption weaken voluntary tax compliance and create more opportunities for firms to avoid taxes. There is a gap between a progressive legal framework and practice regarding a corporate governance code in Vietnam, especially the role of the board of directors (BoD) in addressing agency conflicts between stockholders and managers. The slow privatization and inadequate regulations for foreign ownership and the role of the BoD in protecting investors’ interests remain costly lagging indicators for Vietnam. The code of governance mechanism, focusing on restructuring ownership and the BoD, needs to be revised as the country further opens and integrates into the world economy. This study investigates the relationship between the BoD, corporate tax avoidance (CTA) and firm value using a sample of Vietnamese non-financial listed firms from 2010-2018. This study examines whether the BoD has any effect on firm tax behaviour, whether investors place a premium value on CTA activities and whether the BoD can affect the CTA-firm value relationship. To explore the relationship between the BoD, CTA and firm value, this study uses the Fixed effects (FE) estimator as the main estimation method to control for the time-invariant effects of the panel data. The study also uses the two-stage least-squares instrumental variables (2SLS/IV) and the system generalised method of moments (system-GMM) estimator to validate the results from FE because of the dynamic panel data and the potential endogeneity arising from the relationship between CTA and firm performance. The empirical results from the regression models show that, among the attributes of the BoD, non-executive directors positively affect corporate tax avoidance. Broadly consistent with previous studies, this study also finds a positive impact of CTA on firm value in the sample of Vietnamese non-financial listed firms from 2010-2018. This means Vietnamese non-financial listed firms perceived CTA as a tax-savings device that can transfer cash from the government to firms in the context of generous tax incentives and lack of transparency as well as weak tax administration. Additionally, female directors can intensify the positive effect of CTA on firm value. However, investors no longer place a premium on CTA when a CEO is also the Chairman of the BoD because of the rent extraction effect of tax avoidance activities. The study’s findings provide some practical implications for investors, firms and policymakers in revising and taking further reforms regarding corporate governance and corporate tax income toward accountability, social equity and sustainable development.