The Moderating Effect of Board Efficiency on the Relationship Between Corporate Tax Rates and Firm Growth in Sub-Saharan Africa

  • Emmanuel Okofo-Dartey University of South Africa, department of financial intelligence
Keywords: Board efficiency; Corporate tax rates; Firm growth; sub-Sahara Africa; Return on Assets; Sales Growth


Even though efficient boards contribute to firms' growth in diverse ways, other factors such as the corporate tax rates
in several countries tend to militate against the positive impact efficient boards may have on firms’ growth. Using
firm and country-level data of 372 non-financial listed sub-Saharan Africa firms spanning 2007 to 2017, this study
investigates the moderating effect of board efficiency on the relationship between corporate tax rates and firm growth
in sub-Sahara Africa. The study employs the difference and the two-step generalized method of moments (GMM)
techniques suggested by Blundell and Bond (1998) to estimate the dynamic panel models specified by the study for
the ten years the study covers. The choice of this estimation technique is motivated by its ability to eliminate
unobservable heterogeneity and address endogeneity problems usually associated with panel data. The results show
that, with efficient boards in place, a reduction in corporate tax rates enables firms in sub-Saharan Africa to grow by
increasing the returns on their equities, all other things being equal. Similarly, the results show that firms in sub-
Saharan Africa can increase their sales levels even when corporate taxes are raised, as long as efficient boards exist.
The implication is that, in the presence of efficient boards, an increase or decrease in corporate tax rates would
positively impact the growth of firms in sub-Saharan Africa. Therefore, consideration should be given to the effects
that corporate tax rates could have on firms’ growth if firms do not have efficient boards in place.


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