Political connections, corporate governance and effective tax rate in Malaysia

This study examines whether political connections and corporate governance influence effective tax rates of public listed companies (PLCs) in Malaysia. The sample consists of 541 firm‑year observations from seven industries listed in the Kuala Lumpur Stock Exchange (now known as Bursa Malaysia) covering three years from 2010 to 2012. The main findings are robust measures relating to political connections, corporate governance and effective tax rates. The findings reveal compelling evidence that Malaysia’s PLCs with high governmental interest which are managed by politically connected CEOs and firms with weak audit governance are more likely to have lower effective tax rates. Foreign institutional ownership and governmental ownership are two determinants that play a monitoring role in managing effective tax rates. The study complements existing literature on effective tax rates by identifying the main factors that influence effective tax rates in PLCs.