Independent Commissioners and Institutional Ownership as Game-Changers: Mitigating the Impact of Financial Determinants on Tax Avoidance in Pakistan’s Food Manufacturing Sector

Abstract

This study examines the impact of profitability, liquidity, leverage, and firm size on tax avoidance in PSX-listed food manufacturing companies (2018–2022), with independent commissioners and institutional ownership as moderators. Novelty lies in integrating these financial determinants with governance moderators in a single framework within Pakistan's under-researched food manufacturing sector, using cash effective tax rate (CETR) as a robust proxy. The research employs purposive sampling (58 firms, 290 observations) and multiple linear regression with two models: direct effects and interaction effects. Results indicate that profitability, leverage, and firm size significantly increase tax avoidance, while liquidity shows no effect. Independent commissioners and institutional ownership reduce avoidance and moderate the relationships by weakening positive financial drivers and strengthening liquidity's compliance role. These findings support agency theory, highlighting governance's role in mitigating agency conflicts. Implications include recommendations for regulators to enhance board independence and institutional monitoring to improve tax compliance and fiscal sustainability in emerging economies.