Tax Planning And Financial Constraints With Moderated Effect Of Audit Quality: Evidence From East African Countries

Abstract

This study aims to provide empirical evidence on the relationship between tax planning and financial constraints with the moderated role of audit quality. This study draws its sample from listed firms operating in developing countries particularly East African Countries, the region where firms are most famous for facing higher financial constraints. We used ordinary least squares (OLS,) fixed effect and feasible generalized least square (FGLS) to estimate the regression on the data spanning 2009 to 2019. The results show a negative relationship between book tax differences and financial constraints, which suggests that companies with larger book tax differences are less likely to experience financial constraints. However, this study found no significant moderated role of audit quality. Nonetheless, the negative relationship between book tax differences and financial constraints has practical and theoretical implications. It highlighted the need for tax authorities and policy makers to reform and enforce their tax regulations to limit aggressive tax planning. It also provides insights into the potential conflicts of interest that can arise between managers and other stakeholders in a company, and highlights the importance of transparency and accurate financial reporting in mitigating these conflicts.