CEO Duality and Corporate Tax Avoidance: The Moderating Role of Audit Quality in Vietnam

Abstract

Background: Corporate tax avoidance remains a critical challenge in emerging markets where corporate governance frameworks and external monitoring mechanisms are continually developing. CEO duality, a structural configuration where the chief executive officer concurrently serves as the board chairperson, significantly shapes managerial incentives and can profoundly influence strategic tax-related decision-making.

Objective: This study examines the impact of CEO duality on corporate tax avoidance and evaluates the moderating influence of external audit quality within the context of an emerging economy.

Methodology: The empirical analysis utilises a balanced panel dataset comprising 2,552 firm-year observations from Vietnamese listed companies spanning the period 2016 to 2023. Tax avoidance is operationalised using accounting-based and cash-based effective tax rates, with book–tax differences employed as an alternative metric for robustness. To ensure statistical validity, the feasible generalised least squares estimator is applied to address potential heteroskedasticity and autocorrelation within the panel data.

Results: The findings indicate that CEO duality is positively and significantly associated with both accounting and cash effective tax rates, suggesting lower levels of corporate tax avoidance in firms maintaining combined leadership roles. Furthermore, the interaction between CEO duality and Big 4 auditors is negative and statistically significant, demonstrating that high-quality external audits actively weaken the effect of CEO duality on corporate tax behaviour.

Conclusion: The study concludes that internal leadership structures and external audit quality function jointly in shaping corporate tax compliance. Structural concentration of managerial power yields different tax compliance outcomes when subjected to rigorous external oversight.

Unique Contribution: This research advances agency theory and corporate governance literature by providing empirical evidence of how external auditing mechanisms serve as a critical governance substitute that mitigates the power dynamics inherent in CEO duality, particularly within institutional environments characterised by weaker regulatory enforcement.

Key Recommendation: It is recommended that corporate regulators and financial market authorities in emerging economies design governance reforms that encourage the separation of the CEO and board chairperson roles. Additionally, policymakers should implement measures that incentivise listed companies to enlist high-quality, independent external auditors to safeguard financial transparency and enhance corporate tax compliance.