Auditor quality, market concentration, and tax avoidance in Ghana: The moderating role of ownership structure

Abstract

Tax avoidance has become a prominent strategy employed by large firms to enhance their competitiveness and market dominance (Sorbe & Johansson, 2017), prompting further investigation into the role of auditors in shaping tax avoidance behaviour. The study examined the relationship between auditor quality, market concentration and tax avoidance in Ghana as well as the moderating effect of ownership structure. With data from 15 non-financial firms listed on the Ghana Stock Exchange from 2012 to 2021, the system generalised method of moment estimation technique was employed. The study found that auditor quality has a significant positive effect on tax avoidance. Moreover, market concentration was found to have no significant effect on tax avoidance. Additionally, the study revealed that ownership structure moderates the relationship between auditor quality and tax avoidance. Also, ownership structure has a moderating impact on the relationship between market concentration and tax avoidance. Based on the findings, the study concludes that firms engage in tax avoidance practices, as evidenced by their effective tax rate being lower than the statutory rate. Policymakers and tax authorities should strengthen tax regulations and enforcement measures. This can include closing loopholes such as profit shifting and implementing stricter penalties for tax avoidance. Furthermore, policymakers should ensure a strong ownership structure and information sharing between investors and auditors to address tax avoidance issues. Investors with significant ownership stakes should use their influence to advocate for responsible tax practices among their investment companies, particularly in industries with high market concentration.