TAX PLANNING, CORPORATE GOVERNANCE AND PERFORMANCE OF BANKS IN GHANA

ABSTRACT 

Tax  planning  is  increasingly  becoming  an  area  of  interest  to  many organizations  including  banks  due  to  the  potential  benefits  that  firms  and shareholders could derive from it. The problem militating against tax planning is the agency cost and other non-tax costs associated with  it. To mitigate the agency  problem  between  shareholders  and  managers,  shareholders  rely  on corporate  governance  mechanisms  in  ensuring  that  managers  carry  out  tax planning  to  enhance  their  wealth.  This  study  examined  the  relationship between tax planning and performance of banks in Ghana in the presence of good  governance  structures.  The  study  used  panel  data  generated  from  the annual reports of 18 sampled commercial banks for a ten-year period, 2004-2014. The study employed fixed effect model of regression via GLS based on the outcome of the Hausman (1978) specification test. The  results  reveal  that,  on  average,  banks  in  Ghana  have  high  effective  tax rate.  But  foreign  owned  banks  have  higher  effective  tax  rate  than  Ghanaian owned banks, suggesting that Ghanaian owned banks, for the period of study were more effective in managing their tax burden than foreign owned banks. The results also show a significant negative relationship between tax planning and  performance.  Regarding  corporate  governance,  the  results  reveal  that corporate  governance  moderate  the  relationship between  tax  planning  and performance.  The  study  recommends  that,  banks  in  Ghana  must  maintain  a system to ensure that management is given monetary incentives for effective tax  planning.  The  study  has  direct  policy  relevance  for  shareholders  in monitoring and controlling banks tax planning activities.