Top management team heterogeneity, governance changes and book-tax differences

Abstract

Book-tax differences (BTD) explain the differences between accounting and tax incomes. This study examines the extent to which the heterogeneity of the top management team (TMT) can explain a firm’s BTD level with a specific focus on the effect of the 2012 changes in the Malaysian corporate governance regulations. Within the TMT’s strategic and social contexts, age, tenure, education and gender heterogeneities are hypothesised to have significant relationships with the firm’s BTD level. Psychologically and socially inspired-upper echelons theory underpins the hypotheses development. Using a sample of Bursa Malaysia listed firms for the eight-year period from 2008 to 2015, the findings suggest significant relationships between BTD and heterogeneity in age, tenure and education. The relationship between age and tenure heterogeneity is attributed to the subsample period prior to the change in the corporate governance regulations. The low heterogeneity subsample is the source of the observed relationship between BTD and heterogeneity in education. This study contributes to the existing literature and practice by providing new evidence to support psychologically and socially inspired-upper echelons theory in explaining the effect that TMT heterogeneity has on a firm’s BTD level. This study also provides new insights on financial reporting and taxation from a governance perspective.

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ORCID for Collins Ntim: orcid.org/0000-0002-1042-4056

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