IMPACT OF AGGRESSIVENESS OF TAX POLICIES AND

C.E.O DECISION MAKING ON FIRM’S FINANCIAL

PERFORMANCE

HAFIZ SYED OSAMA ALI GARDEZI

19-ARID-4189
HASSAN MASOOD
19-ARID-4173
MOEED AHMAD AWAN
19-ARID-4202
MUHAMMAD SHAFIQUE
19-ARID-4206

University Institute of Management Sciences

PIR MEHR ALI SHAH

ARID AGRICULTURE UNIVERSITY RAWALPINDI
PAKISTAN
2023

i
 by

HAFIZ SYED OSAMA ALI GARDEZI

19-ARID-4189

HASSAN MASOOD

19-ARID-4173

MOEED AHMAD AWAN

19-ARID-4202

MUHAMMAD SHAFIQUE

19-ARID-4206

A Report submitted in partial fulfillment of

the requirement for degree of

BS Commerce

University Institute of Management Sciences

PIR MEHR ALI SHAH

ARID AGRICULTURE UNIVERSITY RAWALPINDI
PAKISTAN
2023

ii
 CERTIFICATION
We hereby undertake that this research is an original one and no part of this thesis falls

under plagiarism.

Name: Hafiz Syed Osama Ali Gardezi Signature: ______________

Registration Number: 19-ARID-4189 Date: ______________

Name: Hassan Masood Signature: ______________

Registration Number: 19-ARID-4193 Date: ______________

Name: Moeed Ahmad Awan Signature: ______________

Registration Number: 19-ARID-4202 Date: ______________

Name: Muhammad Shafique Signature: ______________

Registration Number: 19-ARID-4206 Date: ______________

Certified that the contents and form of Report entitled Impact of Aggressiveness of Tax policies

and C.E.O decision making on firm’s financial performance submitted by “HAFIZ SYED

OSAMA ALI GARDEZI, HASSAN MASOOD, MOEED AHMAD AWAN, MUHAMMAD

SHAFIQUE” has been found satisfactory

Supervisor: ____________________

(Dr. Kaleem Ullah)

Date of Presentation

i
 DEDICATION

We dedicate this research work to our honorable parents without their support and prayers we are
nothing. Our parents encourage us in all difficulties of life.

ii
 CONTENTS

1.1 Problem Statement.......................................................................................................................1

1.2 Background.................................................................................................................................1
1.2.1 Firm Financial Performance.................................................................................................4
1.2.2 CEO Attributes and Firm Performance.................................................................................5
1.2.3 Firm Size and Firm Performance..........................................................................................5
1.2.4 Firm Value............................................................................................................................6

1.3 Problem Identification.................................................................................................................7

1.4 Problem Statement.......................................................................................................................8

1.5 Need of the study.........................................................................................................................8

1.6 Research Questions.....................................................................................................................9

1.7 Research Objectives.....................................................................................................................9

1.8 Significance of the study.............................................................................................................9

1.9 Scope of the study......................................................................................................................10

2 LITERATURE REVIEW...................................................................................................................10

2.1 Tax Aggressiveness Overview....................................................................................................11

2.1.1 Tax Avoidance....................................................................................................................12
2.1.2 Return on Equity................................................................................................................12
2.1.3 Return on Asset.................................................................................................................14
2.1.4 Profit before Tax................................................................................................................15
2.1.5 Corruption related reasons of tax evasion:........................................................................16
2.1.6 Anti-tax culture and sense of tax responsibility:................................................................17
2.1.7 Lack of tax culture and tax avoidance causes:...................................................................17

2.2 Hypothesis..................................................................................................................................18
2.2.1 Tax aggressiveness and Firm Performance........................................................................18
2.2.2 CEO Attributes and Firm Performance...............................................................................20
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 2.2.3 CEO Experience and Firm Performance.............................................................................22
2.2.4 The Ownership of CEO and Firm Performance..................................................................23
2.2.5 CEO Financial Education and Firm Performance................................................................25
2.2.6 Firm Growth and Firm Performance..................................................................................29
2.2.7 Summary of Hypothesis.....................................................................................................30

2.3 Conceptual Framework.............................................................................................................30

3 Data and Methodology...............................................................................................................31

3.1 Research Design........................................................................................................................32

3.2 Study Population.......................................................................................................................32

3.3 Study Sample.............................................................................................................................32

3.4 Methodology..............................................................................................................................32
4 RESULTS AND DISCUSSIONS........................................................................................................33

4.1 Results........................................................................................................................................33

4.2 Correlation Analysis..................................................................................................................34

4.3 Regression Model......................................................................................................................35

4.4 Final CLRM Result...................................................................................................................36

4.5 Discussion of Results.................................................................................................................37

5 CONCLUSION AND RECOMMENDATION.....................................................................................39

5.1 Conclusion.................................................................................................................................39

5.2 Implications...............................................................................................................................40

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 ACKNOWLEDGEMENTS
All praises are for Allah Almighty that has bestowed upon human being the crown of creation
and has endowed him with knowledge and wisdom. We are very thankful to Allah Almighty, His
shower of blessings in all our research work and to complete this research successfully. We are
thankful to our ever caring and loving parents whose prayers helped us to reach this stage of my
life. We would like to thank to our supervisor Madam Fareeda Faisal for patience, support with
full encouragement and enthusiasm, help and guidance throughout this research. It is honor for
us to learn from our supervisor. We are extremely grateful to supervisor for their precious time.
We would like to thanks to Abdul Basit the partner of Basit Zafar & Co who helps us in
completing our interview guide and refers us to many other tax firms for completion of
interviews.

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 CHAPTER 1

INTRODUCTION

In this chapter the study’s introduction is presented. Introduction provides the brief overview of
the research. It provides the context on which this study is conducted and cover all the chapter’s
brief information. Background of the study and relationships of tax aggressiveness, CEO
attributes and firm performance are presented. Likewise, problem statement, research Gap,
Research Questions and objectives are deliberated. Furthermore, Practical and theoretical
significance along with underpinning theories are also discussed.

1.1 PROBLEM STATEMENT

Studies have shown that there is a negative relationship between tax aggressiveness and
a firm's financial performance, as firms engaging in tax aggressive practices may face higher
tax risk and lower reputation, leading to lower market value and lower investment
opportunities. Tax aggressiveness in our country tax avoidance in our companies’ environment
and there is no proper tax policies. Secondly, tax aggressiveness shifted on the customers with
direct and indirect taxes; this policy ultimately affects the pricing strategy. That is the reason of
loose of customers’ market share. However, tax evasion and tax avoidance still occur for
various reasons. Companies in particular are reluctant to pay taxes. A new agenda for the tax
system needed to create a tax culture among companies and widen the tax net to include
unregistered firms. Our financial performance is highly damaged with this kind of
aggressiveness, also, it is not increasing on the level of it should be.

1.2 BACKGROUND

Tax aggressiveness refers to a firm's strategy of maximizing tax savings through aggressive tax
planning and minimizing tax payments within the bounds of the law. CEO characteristics, such
as their level of education, experience, and risk-taking behavior, can also affect a firm's financial
performance. Recently, there has been considerable interest in the relationship between tax

1
aggressiveness and firm value in both developed and developing countries. This interest stems
from the fact that stakeholders are more interested in how a firm can reduce its tax burden to
improve its value and performance (Wang, Xu, Sun & Cullinan, 2020; and Bradshaw, Liao &
Ma, 2019). According to Rui (2019), He, Ren, and Taffler (2019), a tax minimization strategy
reduces a firm's tax burden. Similarly, European Commission (2018); and Hairul, Ibrahim, and
Siti (2014) see tax aggressiveness as the deliberate reduction of a firm's exact tax liabilities.

Although we expect firms to compensate managers for some degree of tax

aggressiveness, we do not expect firms to compensate managers for tax aggressiveness that
imposes excessive costs on the firm and thereby reduces shareholder wealth. Highly aggressive
tax reporting can cause additional costs to businesses, such as the costs of implementing an
aggressive tax plan (e.g. promoter and legal representative fees), costs associated with IRS audits
and subsequent litigation (e.g. accounting and legal fees), e.g. as well as the reputational costs
associated with public disclosure of tax shelter activity (e.g. negative effects on stock prices as in
Hanlon and Slemrod 2007). Additionally, if there is consistency between financial and tax
reporting, reporting lower taxable income may generate financial reporting costs (i.e. lower
financial income). In short, we do not expect firms to compensate managers for tax
aggressiveness if the costs exceed the benefits.

Tax aggressiveness and tax evasion have remained a serious problem in Pakistan for a
long time. According to official statistics, Pakistan has a tax-to-GDP ratio of 11%, which is
significantly lower compared to several emerging economies. The Ministry of Planning,
Development and Special Initiatives estimates that Pakistan has a shadow economy that accounts
for nearly 40% of GDP. This suggests that a large part of the economy remains undocumented
and does not contribute to overall tax collection. Poor tax collection in Pakistan is mainly due to
faulty tax collection mechanism, corruption and lack of accountability for tax evaders. Moreover,
high levels of corruption and lack of accountability encourage firms to engage in tax-aggressive
practices. Pakistan has suffered immensely due to persistently low tax collection by the
government over the past few decades. Low tax collection adversely affected spending on public
sector development, economic growth and contributed to high inflation in the country. Given the
importance of adequate tax revenue to Pakistan's development, it is imperative that policy

2
makers, academics, industry stakeholders and the general public make a concerted effort to bring
about broader structural changes to Pakistan's tax system.

Based on the above discussion, this study analyzes the relationship between tax
aggressiveness, cost of debt, political connections and firm performance in the context of an
emerging economy i.e. Pakistan. Emerging economies have unique features and institutional
dynamics that make them an interesting avenue for research. Pakistan is also an emerging
economy with law and order issues (Khurshid, 2015), political interference (Hashmi, Brahmana
& Lau, 2018) and corruption (Ali et al., 2019). Furthermore, previous studies have not provided
sufficient evidence on the link between tax aggressiveness, debt costs, political connections and
firm performance in the context of developing countries (Khuong, Liem & Thu, 2020). Thus, this
study has several research objectives. First, the study examines the relationship between tax
aggressiveness and firm performance. Second, we examine the relationship between the cost of
debt and firm performance. Third, we analyze whether political ties moderate the relationship
between (i) tax aggressiveness and firm performance and (ii) cost of debt and firm performance
in relation to Pakistan.

Tax aggressiveness has given rise to several terms such as tax avoidance, planning,
sheltering, and these terms are used interchangeably with tax aggressiveness (Gebhart, 2017;
Dyreng, Hoopes & Wilde, 2016; and Edwards, Schwab & Shevlin, 2016). Evers, Meier, and
Nicolay (2016) argued that tax aggressiveness entails some complexity to avoid detection by
companies; however, the objective is focused on maximizing firm value and performance. For
example, when companies can reduce their tax liabilities, more revenue is generated and the
value and performance of the firm improves.

Notably, tax aggressiveness does not add to the government's revenue base; the
government sees it as a source of loss and increased reputational risk (Richard, 2014; Goh, Lee,
Lim & Shevlin, 2016; and Blaylock, Gaertner & Shevlin, 2015). Again, Hasan, Hoi, Wu, and
Zhang (2014) argued that the lack of tax information caused shareholders to evaluate tax
planning differently. Although tax aggressiveness may disguise the dishonesty of firm
management, it helps firms improve their value and performance (Armstrong, Blouin & Larcker,
2012; Chen, Chen, Cheng & Shevlin, 2010; and Dyreng, Hanlon & Maydew, 2010). Tax
aggressiveness refers to various manipulative activities aimed at reducing the taxable income of
3
a firm (Yeung, 2010; Kim, Li & Zhang, 2011; and Mulyadi, Anwar & Erminus, 2014). Wang et
al. (2020) stated that the most fundamental reason why companies engage in tax aggressiveness
is to increase their net income (value and performance), which creates a positive signal for
foreign investors. Implementing an aggressive tax strategy reduces potential non-tax costs arising
from agency or tax authority conflicts (Desai & Dharmapala, 2009).

The methods of tax aggressiveness of companies in developed economies tend to be well

documented. According to Nwaobia and Jayeoba, (2016), this method revolves around transfer
pricing which includes pricing for transactions between companies that are part of the same
multinationals; Corporate debt capital, which includes intercompany loans made by entities from
lower-tax countries to subsidiaries in higher-tax countries, thereby reducing taxable profit in the
higher-tax country. A channel where a corporation transfers money through a country that thus
benefits from a favorable tax rate; shifting income from higher tax countries to lower tax
countries. Profit shifting strategy, which is achieved by reducing operating activities (and related
income) in a higher tax state, shifting them to subsidiaries located in a lower tax state, low
capitalization, which represents debt-to-equity ratios and determines the degree of holders'
claims on company revenues and assets (Nwaobia & Jayeoba, 2016).

1.2.1 Firm Financial Performance

Business growth and company success are closely linked. Profitability is often considered a key
element in judging a company's ability to endure and prosper (Fareed, Ali, Shahzad, Nazir, &
Ullah, 2016). There are several methods and techniques that can be used to assess the success of
a company. Common tools of financial analysis are indicators of the overall efficiency and
performance of the company, indicators of profitability. The basic goal of every company is to
increase profitability. As a result, companies can experience increased profitability (Niresh &
Velnampy, 2014). This can be understood as a subjective assessment of a company's ability to
generate revenue using assets from its core business. This term is commonly used to compare
similar companies operating in the same sector or to compare entire markets. It can also be used
as a general indicator of the state of a company's finances over a given time frame. Most current

4
studies use financial performance (such as profitability and growth) to assess firm performance
(Murphy & Zoltan 1996).

1.2.2 CEO Attributes and Firm Performance

Regardless of size or shape, organizational leadership is considered critical to their success and
expansion (Wood and Vilkinas 2005). In today's high-powered professional workplace,
characterized by widespread market rivalry, mechanical change, unpredictability of expansion
and financing costs, fluctuating business rates, changing spending regulations and environmental
issues, among others, top management, especially CEOs, assumes a critical role . in association
formation in general (Van Horne and Wachowicz 2015). Li and Singal (2017); Berson et al.
(2008); Gordon et al. As reported by Ting et al. (2017), the CEO is the top boss of the
organization and arguably its public face (Gorn et al. 2008 as cited in Canace et al. 2020).
Regardless of the size of the organization—huge, miniature, small, or medium—many studies
have revealed that the characteristics of CEOs are significant in furthering a firm's business
success. Moreover, since the CEO's core navigation directly affects the monetary presentation of
the organization, as Ren et al. (2020) and Love et al. (2017), the management style of the CEO
can affect the long-term development and reputation of the company. It doesn't matter the size of
the business—large, miniature, small, or medium—various surveys have shown that the
characteristics of CEOs are vital in helping a company's cash flow. Ren et al. (2020) and Love et
al. (2017) confirm that the CEO's initiative style can affect the long-term development and
reputation of the firm, as the CEO's fundamental orientation directly affects the monetary exhibit
of the organization. As far as we could tell, the depicted angles of enterprises that are "the engine
of the company's esteemed age and sustainability" definitely stand out. Past research appears to
have generally emphasized examining the relationship between a firm's transitory financial
performance and CEO characteristics.

Supervisors choose which key actions to take and how to use them in given circumstances (Zor
et al. 2019). Chieftains have various attributes, including level of instruction, age, insight, and
character, among others. In this way, the mental and recognizable characteristics of the CEO
actually influence their choices and behavior, which affects hierarchical outcomes (Ren et al.

5
2020; Wang and Chen 2020; Gupta et al. 2018; Baker and Wurgler 2013; Chatterjee and
Hambrick 2007). A past experimental review supports this perspective.

1.2.3 Firm Size and Firm Performance

Many factors play a role in the process of deciding on an investment plan. The following
organizational elements have an influence on tax aggressiveness: Company size: When
implementing an investment strategy, this component is, according to Buonanno et al. They
argue that a different approach needs to be taken based on the industry to which the firm belongs.
In addition, "there is a high correlation between firm size and the percentage of firms that have
implemented a comparable investment plan." Organizations regardless of size, whether large or
small, are often characterized by high business complexity. This complexity is a key requirement
for the coordination and management of business processes, which is related to the complexity of
the information system.

1.2.4 Firm Value

Investors' expectations about the value of a corporation are reflected in the stock price, which is a
measure of that value. This sum is the present value of all the projected future profits of
shareholders (Sartono, 2000:11). The value of a company when it is sold can be used to calculate
the value of the firm for companies that have not gone public, according to Martono & Harjito
(2003:13). Financial promoters assume that the speculation value of the organization they put
resources into will improve or if nothing else be identical to the gamble reward considered when
the time value of cash is taken as Djaja (2017:3) states. An organization's corporate value reflects
management's ability to make financial and tax aggressiveness (Ross, Westerfield, Jaffe, &
Jordan, 2015:11). A company's financial performance, which is the result of many managerial
actions, can be used to judge whether its firm value is high or low. According to Harjito &
Martono, the three main areas of financial management are asset management, financing
decisions and tax aggressiveness (2013:4).

6
The value of the company can be assessed both internally (within the organization) and
externally. It can be measured internally using return on equity (Brigham & Houston, 2006). For
external evaluation, the market value method of accounting can be used (Ross et al., 2015).
Investors' expectations of a company's performance relative to the book value of its shares are
measured by the market value to book value ratio. According to Ross et al. a company does not
offer value to its shareholders if the ratio of market value to book value is less than one
(2015:54). According to Brigham & Gapenski (1997:55), businesses that are effective in their
management garner a lot of attention, which is reflected in their excess stock market values that
are greater than book value. Enterprise value reflects the management team's potential for
effective operation.

1.3 PROBLEM IDENTIFICATION

Taxes, increases the performance of companies; therefore, any reduction in taxes paid
contributes to the profit disclosed in the financial statements. It is about supporting the main
purpose of companies' activities, which is the creation of value for shareholders; therefore, the
measures taken to minimize the tax burden are in line with this objective. Earlier researchers
focused on satisfying the general objectives of variables that can legally reduce taxes paid to
the government without addressing their effect on firm performance. Studies by Boussadi and
Hamed (2015), Ribeiro, Cerqueira, and Brandao (2015), Jalan, Kale, and Meneghetti (2013),
Utkir (2012), Harrington and Smith (2012), Mohamed and Ines (2012), Martani, Anwar, and
Fitriasari (2011) confirm this when they focus on the determinants of tax aggressiveness
without examining the effect of tax aggressiveness on the performance of these firms.

Moreover, the instant literature on tax aggressiveness has recorded mixed findings.
While proponents of tax aggressiveness such as Anouar and Houria (2017), Terry Laksham
and Oktay (2016), Ezugwo and Akudo (2014), Fichman and Levinthal (1999); Baron (1994)
documented the positive sign of tax aggressiveness that could lead to an increase in
shareholder wealth. Managers were therefore challenged to understand and maximize
opportunities within the tax system and policy to reduce taxes paid to the government. The
purpose of this study is to examine the relationship between tax aggressiveness and a firm's

7
financial performance and to understand the implications of such strategies on the long-term
financial health of the organization.

On the other hand, CEO characteristics such as education, experience, and risk-taking
behavior have been found to positively affect a firm's financial performance, as better-educated
and experienced CEOs tend to make better strategic decisions, while risk-taking behavior can
lead to increased innovation and new business opportunities. This research therefore merits an
empirical examination of the determinants of tax aggressiveness and how these determinants
can explain the financial performance of manufacturing firms. It is important to note that while
these relationships exist, the impact of tax aggressiveness and CEO characteristics on a firm's
financial performance can vary depending on the specific circumstances and can be moderated
by other factors such as industry conditions and market competition.

1.4 PROBLEM STATEMENT

Studies have shown that there is a negative relationship between tax aggressiveness and
a firm's financial performance, as firms engaging in tax aggressive practices may face higher
tax risk and lower reputation, leading to lower market value and lower investment
opportunities. Tax aggressiveness in our country tax avoidance in our companies’ environment
and there is no proper tax policies. Secondly, tax aggressiveness shifted on the customers with
direct and indirect taxes; this policy ultimately affects the pricing strategy. That is the reason of
loose of customers’ market share. However, tax evasion and tax avoidance still occur for
various reasons. Companies in particular are reluctant to pay taxes. A new agenda for the tax
system needed to create a tax culture among companies and widen the tax net to include
unregistered firms. Our financial performance is highly damaged with this kind of
aggressiveness, also, it is not increasing on the level of it should be.

1.5 NEED OF THE STUDY

A worldwide economic crisis that is now affecting many countries' industrial sectors has
brought attention to the issue and led academics, academicians, and other professionals to search

8
for solutions. Since then, several studies have conducted in a range of fields and industries to aid
in the fight against the prevailing economic crisis. In this vein, numerous studies have been
conducted with a primary focus on either the impact of capital structure decisions on corporate
performance (Abdalla & Fakhri, 2013; Zeyad, 2016) or the impact of tax aggressiveness and
financing decisions on corporate performance (Siam et al., 2005; Zeitun & Tian, 2007; Soumade
& Hayajne, 2010). (Ghadome, 2008; Altarawneh, 2009; Zaher, & Altahtamoun, 2014; Daoud et
al., 2015). Our study builds on separate streams of prior research. It investigates the valuation
implications of aggressive tax reporting, as well as the links between cost of debt and firm
performance and tax reporting aggressiveness in relation to Pakistan.

Wilson finds that tax shelter firms with strong corporate governance exhibit positive
abnormal stock returns during the active tax shelter period and these returns are significantly
higher than those of tax shelter firms with poor corporate governance. Similar to Desai and
Dharmapala (2007) and Hanlon and Slemrod (2007), the results of Wilson (2008) suggest an
interaction effect between tax aggressiveness, corporate governance strength and their impact on
firm value. In summary, previous research shows that tax shelters can be a value-maximizing
activity, but most likely for firms with stronger corporate governance structures.

1.6 RESEARCH QUESTIONS

A research question is a question that a study or research project aims to solve. The answer to
this question, which often refers to a problem or issue, given in the findings of the study. The
research question is usually written with information about the measurement unit, contributing
factors, classification, and stud issue. This study seeks to answer the following research
questions.

1. How tax aggressiveness affects the financial performance of the firms?

2. How CEO characteristics influences the financial performance of the firms?

9
1.7 RESEARCH OBJECTIVES

The research objectives are used to modify the research objectives to make them practical and
achievable. In other words, the objectives of the study describe the steps that the researcher will
take to accomplish the objectives of the study. Survey objectives should be quite specific (high
determination) and useful beyond the aim of the survey. The research objectives of this study
are:

1. To find the impact of tax aggressiveness on the financial performance of the firms.
2. To examine the impact of CEO characteristics on the financial performance of the firms.

1.8 SIGNIFICANCE OF THE STUDY

This study on the impact of tax aggressiveness on firm performance will make a significant
contribution to the domains of accounting and finance even if it did not result in the development
of a new theory. It has combined fresh and comprehensive ideas on how aggressiveness of tax
effects business performance, tying CEO qualities to tax aggressiveness since CEOs are
powerful and their choices might have an impact on the entire company (luo et al., 2012). To
make their business more efficient, they invest in the areas where they made the most money. A
company’s performance has closely linked to its stock options. Various factors therefore
influence the choice of currency by the firm when making that decision. Two of the most
important areas in the economy are tax mess and controlling economic growth. Determining how
a team’s budget will affect overall performance is a concern because project success directly
affects the company’s revenue and, therefore, its ability to survive. Top management, including
the board of directors, chairman, and CEO, is in charge of selecting investments. However, the
CEO (chief executive officer) of the company is very important. CEOs are usually in charge of
corporate expansion, profit growth, and in the case of public companies, share price appreciation,
but each company is different. Management is responsible for managing every aspect of a
project. Depending on the size, culture, and corporate structure of the organization, the role of
the CEO may change. In large corporations, CEOs generally deal only with very high-level
strategic decisions and those that guide the overall growth of the company. Some studies suggest

10
that the CEO is responsible for 45% of a company’s performance, while others suggest that they
are responsible for 15% of changes in profitability.

1.9 SCOPE OF THE STUDY

The study investigates the effect of tax aggressiveness on the financial

performance of listed companies in Pakistan. To do this, we obtained data from the annual report
of listed companies in the Businesses, Healthcare and Agricultural sectors listed in the Pakistan
Stock Exchange, for a period of ten years 2013 through 2022.

CHAPTER 2

2 LITERATURE REVIEW

This chapter builds on the material from the Introduction. It also reviews the literature on tax
aggressiveness, CEO characteristics in the world. The study focused on the establishment of PSX
in Pakistan. Previous research in this area and the conceptual framework have also been
included. Books, journals, periodicals, conference readings, prior research, and internet searches
were the sources of the literature search. Knowledge from the first chapter is expanded upon in
this chapter. A review of the literature on performance and currency choice across the economy
is also included. A summary of the conceptual framework and previous research in the field is
also provided.

2.1 TAX AGGRESSIVENESS OVERVIEW

Hanlon and Heitzman (2010) suggest that tax strategies exist on a continuum with lower explicit
tax savings and fully legal positions at one end and higher explicit tax savings and questionable
legal positions at the other end. They further state that "tax planning activity or tax strategy can
be anywhere along a continuum depending on how aggressive the tax reduction activity is" (p.
137). Examples of tax aggressiveness include sheltering activities (Weisbach, 2002; Wilson,

11
2009; Dyreng and Lindsey, 2009; Lisowsky, 2010; Lisowsky et al., 2013), positions with
uncertain IRS audit results (Rego and Wilson, 2012) and complex financial reporting (Frank et
al., 2009; Mills, Robinson, & Sansing, 2010; Donohoe & Knechel, 2014).

Tax aggressiveness can take many forms. For example, an article in the New York Times
documents the tax strategy of Apple Inc. "Double Irish". It states: “This strategy [“The Double
Irish”] … involves setting up a shell subsidiary in an offshore tax haven — a.k.a. Ireland — and
transferring most of Apple’s intellectual property rights to the dummy subsidiary. The
subsidiary, in turn, charges “royalties” that allows it to capture billions of dollars in what
otherwise would be taxable profits in the United States. In Ireland, according to Apple, it pays
an astonishing 2 percent in taxes, thanks to a deal it has with the government.” (Nocera, 2013).
This tax strategy reflects a comprehensive set of measures designed to reduce Apple's tax
liability. What makes these actions unique from other non-aggressive tax planning activities (i.e.
municipal bond investments or accelerated depreciation deductions) is that "The Double Irish"
attracted regulatory scrutiny and it was unclear whether Apple would be able to keep all funds.
Earned through tax activity. Therefore, this complex but not uncommon tax planning technique
can be labeled as aggressive.

Tax aggressiveness has the potential to be a beneficial financial activity of the company. For
example, Mills et al. (1998) provide evidence that for every dollar invested in tax planning, a
firm saves an average of four dollars in tax liabilities. This result suggests that tax aggressiveness
is a value-enhancing activity due to the activity's ability to increase cash flows through lower
explicit taxes. Another New York Times article about Apple anecdotally demonstrates this
positive effect. He states, “Even as Apple became the most profitable technology company in the
country, it avoided billions in taxes in the United States and around the world” (Schwartz, 2013).
Since tax expense is often one of the biggest costs on a company's income statement, it seems
reasonable that the benefits of tax planning are significant. Additionally, Robinson, Sikes, and
Weaver (2010) document that many firms view their tax department as a profit center. In
principle, companies increasingly see taxes as a contributor to the overall economic outcome
rather than a measurement system designed to minimize costs. In addition, Goh, Lee, Lim, and
Shevlin (2016) found that tax planning is associated with a lower cost of equity capital. Finally,
Edwards et al. (2015) provide evidence that tax planning can be used as an internal source of

12
financing, as shown by tax savings that allow constrained firms to access good investment
projects. Thus, tax aggressiveness may be a value increasing firm activity.

2.1.1 Tax Avoidance

Tax avoidance means reducing the amount of tax (Orem, 2020). Tax avoidance means when an
individual or business legally reduces tax liabilities in a tax framework, for example by setting
up an offshore organization in a country or region where taxes paid at a low rate. An example is
adding income in future savings in the bank to not paying income tax (Dodd, 2020). For the most
part, tax evasion or tax evasion by income earners or wealthy individuals. Poor people did not
know, how to avoid the tax, usually they pay the tax. (Murray, 2020)

2.1.2 Return on Equity

Return on equity shows how well management is using investors' capital invested in the
company. It reveals how much profit the company earned compared to the total amount of equity
found in the statement of financial position. Because equity represents the owners' share of the
business. Their investment is fully at risk compared to other sources of funds supporting the
business. This is because shareholders are the last in line if things turn sour. Equity capital
therefore tends to be the most expensive source of funds and carries the largest risk premium of
all financing options. Its commitment is decisive for the success, even the survival of the
company. Therefore, the allocation or deployment of capital is the most important executive
decision facing the management of any organization. By measuring how much income a
company can generate from its equity, ROE offers a measure of profit-generating efficiency.
Businesses that do a good job of generating profit from their operations usually have a
competitive advantage, a trait that usually translates into better returns for investors. The
relationship between a company's profit and investor returns makes ROE a particularly valuable
metric to examine.

13
 ROE offers a useful signal of financial success because it can indicate whether a
company is growing profits without pouring new equity into the business. A steadily increasing
ROE is an indication that management is giving shareholders more for their money, which is
equity. ROE is being calculate by taking the year's after-tax profit and dividing it by book value
of equity (common stock) at the beginning of the year. Average capital can used also. Equity
would consist of issued ordinary share capital plus share premium and reserves. Thus, ROE can
improved by improving profitability, using assets more efficiently, and increasing financial
advantage.

Although ROE has some appeal because it combines the income statement (profit) with
the statement of financial position, it has some shortcomings as a measure of performance. Wet
de and Toit, (2007), note that one of the fallacies of ROE is that corporate earnings can legally
manipulated within generally accepted accounting practices (GAAP) through changes in
accounting policies. The second shortcoming is that ROE is calculate after the cost of debt but
before the cost of equity into account. ROE increases with greater financial advantage if the
returns earned on borrowed funds exceed the cost of borrowing. The danger associated with
increasing financial indebtedness above a certain level is that the increased financial risk can
cause the company's value and share price to decline. The pursuit of higher ROE can lead to
wealth destruction, which is inconsistent with the economic principles of shareholder value
creation. Rappaport (1986) pointed out that the second component of ROE, namely asset
turnover affected by inflation in that it can increase even if assets are not being better utilize. He
reasons that sales directly reflect the impact of inflation, while the book value of assets, which is
a mix of new and older assets, does not adjust as quickly to the effects of inflation. Return on
equity shows how well management is using investors' capital invested in the company. It
reveals how much profit the company earned compared to the total amount of equity found in the
statement of financial position. Because equity represents the owners' share of the business.
Their investment is fully at risk compared to other sources of funds supporting the business. This
is because shareholders are the last in line if things turn sour. Equity capital therefore tends to be
the most expensive source of funds and carries the largest risk premium of all financing options.
Its commitment is decisive for the success, even the survival of the company. Therefore, the

14
allocation or deployment of capital is the most important executive decision facing the
management of any organization. By measuring how much income a company can generate from
its equity, ROE offers a measure of profit-generating efficiency. Businesses that do a good job of
generating profit from their operations usually have a competitive advantage, a trait that usually
translates into better returns for investors. The relationship between a company's profit and
investor returns makes ROE a particularly valuable metric to examine.

2.1.3 Return on Asset

Return on assets (ROA) measures the operating and financial performance of a firm (Klapper &
Love, 2002). It measures how much profit the firms' assets generate, as it says, how much
percentage of every naira invested in the business returned as profit. The total assets figure
shows how much naira used in the business to generate profit. Thus, return on assets (ROA) is a
financial ratio that shows the percentage of profit a company earns in relation to its total
resources. It commonly defined as net income divided by total assets. Net profit derived from the
company's income statement and profit after tax. Assets are deducted from the statement of
financial position and include cash and cash equivalents such as accounts receivable, inventory,
land, capital equipment as they are depreciated, and the value of intellectual property such as
patents.

Companies that have acquired may also have a category called goodwill representing the
extra money paid for the company over its actual book value at the time of acquisition. Because
assets will tend to fluctuate over time, the average of assets over the period to be measure should
use. Unlike other profitability measures, such as return on equity (ROE), ROA measures include
all assets of the business; those arising from liabilities to creditors as well as capital paid back by
investors. Total assets used rather than net assets. For example, the company's cash holdings
have borrowed and thus balanced by a liability. Likewise, the company's receivables are
definitely an asset, but they balanced by its liabilities, a liability. For this reason, ROA is usually
less interesting to shareholders than some other financial ratios; shareholders are more interested
in the return on their input. However, the inclusion of all assets, whether derived from debt or

15
equity, is of more interest to management who want to assess the use of all the money put to
work. ROA used internally by companies to track asset utilization over time, to track company
performance in light of industry performance, and to track different operations or divisions by
comparing them to each other. To achieve this effectively, accounting systems must be in place
that accurately allocate assets to different operations. ROA can signal both efficient use of assets
and undercapitalization. If ROA begins to grow relative to the industry as a whole and
management cannot pinpoint the unique efficiency that creates profitability, the favorable signal
may be negative: investment in new equipment may be delayed. The measurement is that the
higher the ROA, the more efficient the use of assets for the benefit of shareholders (Haniffa &
Huduib, 2006). A higher ROA reflects the efficient use of a company's assets in serving the
economic interests of its shareholders (Ibrahim & AbdulSamad, 2011). According to
Mashayekhi and Bazab (2008), Hutchinson and Gul (2004), accounting-based performance
measures represent the result of management action and are therefore preferred over market-
based measures. Consequently, a company showing positive performance through ROA shows
that it has achieved previously planned high performance (Nuryanah & Islam, 2011).
Conversely, negative performance indicates a failure of planned high performance, which
requires revision of plans to increase short-term performance. Negative performance results in
the loss of investors (domestic and foreign).

2.1.4 Profit before Tax

Profit before tax (PBT) is a measure that tracks a company's profits before the company pays
corporation tax. It deducts all costs including interest costs and operating costs except income tax
from revenues. Profit before tax combines all of a company's profits before tax, including
operating, non-operating, continuing and discontinued operations. PBT exists because tax costs
are constantly changing and help the investor get a good idea of the annual changes in corporate
profits. PBT includes all income regardless of source. This includes sales, commissions, service
revenue, interest and rent received. Subsequently, all costs except corporate income tax
deducted. PBT provides internal management and external users of financial data with the
company's operational performance. Excluding income tax expense from PBT allows for greater
comparability of the operations of two or more firms regardless of how tax policies define their
16
net income. Therefore, by excluding income tax, PBT minimizes one additional variable that
may contain various indicators that affect how financial data is read. This is because one firm
may receive significant tax benefits that will positively affect the net income of one entity, while
an entity with an unfavorable tax policy will be negatively affected. In addition, there can be
significant differences in taxation between companies, as age, capital utilization and geographic
location will all play factors in how much income tax a business must pay. PBT eliminates any
influence a tax jurisdiction may have on a company's financial information. When profitability is
measured on the basis of pre-tax profits, firms that are more profitable are expected to have
higher earnings and consequently pay higher taxes. This view is most evident in the literature.
Armstrong (2012), Minick and Noga (2010), Richardson and Lanis (2007), Gupta and Newberry
(1997) found a positive relationship between firm profitability and the effective tax rate (ETR).
As Rego (2003) points out, more profitable firms have lower tax administration costs because
they have more resources to invest in tax planning activities that contribute to lower effective tax
rates. In addition, firms with higher pre-tax profit have more incentives to reduce their tax
burden and consequently to reduce EDR. PBT is a performance measure that emphasizes the
general operations of a business, and is therefore a sensitive indicator with the ability to
influence the effective tax rate, which is why PBT was chosen as a proxy for performance in this
study.

2.1.5 Corruption related reasons of tax evasion:

Tax evasion is illegal and a crime where an individual or company tries to avoid paying their true
tax liability when they know all aspects of taxes (Kagan, 2020). Corruption adversely affects the
revenue collected in the country. The understanding between corruption and tax revenue is
insufficient because there is insufficient data on the impact of taxation with respect to corruption.
Corruption lowers the tax-to-GDP ratio while aiming to damage the economy in the long term by
limiting speculation, expanding the size of the informal economy, unfairly taxing structures, and
damaging the tax morale of taxpayers. These further reduce the long-term earning capacity of the
economy in the country (Nawaz, 2010). A qualified, reasonable, integral, experienced, motivated
and highly trained tax administration is important for the enforcement of tax laws, the collection
and classification of tax revenues. Pakistan is struggling with a lack of tax administration. Tax
17
collection and implementation organization in Pakistan such as Federal Board of Revenue is
called or notable as the most corrupt institution in the country. Taxpayers are not afraid of tax
evasion by checking their accounting records or using different methods because they will surely
pass the assessment and audit process by offering bribes (Awan & Hannan 2014).

2.1.6 Anti-tax culture and sense of tax responsibility:

Tax culture refers to the presence of a tendency or habit to pay taxes in a country. It means that
everyone feels responsible and legitimately obliged or compelled to pay taxes. As a result,
governments use their taxes to provide services and benefits to the public. Governments should
have such policies that help in promoting or promoting a tax culture and public interest in paying
taxes.

2.1.7 Lack of tax culture and tax avoidance causes:

Tax culture becomes prominent when people consider themselves to be honest citizens and when
the government shows improvement in the tax collection system. According to the new Taxpayer
Directory, there are no new developments or improvements in the field of taxation. It is very
disappointing that 177 legislators of our country did not pay taxes but unfortunately their income
or salaries are from the tax payers. Some legislators avoid paying the actual amount of tax by
introducing FBR on assets and earnings to minimize the amount of tax. It is the duty of the
political leaders to convince or order the MPs to pay these taxes to the government, but these
political leaders also reduce the tax culture and tax evasion. (Yasir, 2020). Lawmakers who
avoid taxes and participate in tax evasion must be removed from their seats immediately. The
government should not allow them to sit before filing their returns and filing their taxes. If these
rich people, politicians, business owners, businessman and mill owners, after consulting their CA
or tax advisor, if they did not pay taxes or paid little taxes, then it will discourage the layman and
it will have a bad impact on the layman. Our tax culture is only supported when these MPs
contribute loyally, generously and responsively and disclose their true resources and assets.
Changes must be initiated in parliament and then applied throughout society. The basic support
of the tax environment is the use of the tax amount for better infrastructure, social and economic
18
development and improvement of the country. The tax ratio of GDP increased up to 50 percent
and full supervision of the higher class of taxes to pay according to their income. (Yasir, 2020)

Individuals here cheerfully join in charitable activities; why not contribute to building the
countryside and to the improvement or better framework of the country. The communities of
mega cities like Karachi, Islamabad and Lahore, which generate the most remarkable taxes in the
country, must be prioritize to meet the need for investment and better infrastructure, which will
finally expand the micro level of organizations and subsequently taxes back to the government.
Generously having a good salary including doctors, entrepreneurs, CEOs, engineers and teachers
should have in the tax circle. In addition, shopkeepers and shopkeepers from various malls, retail
stores and shops charged in the capital and other countries that pay the most taxes. Therefore, the
government has collected a decent amount of 50 billion rupees from the target of the fiscal year
2019-2020 with the economy falling due to the pandemic or the outbreak of the coronavirus.
(Yasir, 2020)

2.2 HYPOTHESIS

2.2.1 Tax aggressiveness and Firm Performance

Tax aggressive activities refer to legal activities that are usually handled by an auditor or tax
agent and can be classified as both gray area activities and illegal activities (Chen et al., 2010).
Tax aggressiveness can also be considered the minimization of paying taxes through tax
planning activities. Tax aggressiveness is used interchangeably as tax avoidance (Desai &
Dharmapala, 2004), tax haven (Yeung, 2010) and tax evasion (Hanlon & Slemrod, 2009). Tax
planning is an action framework of management in an organization to reduce tax expenses
without falling victim to the risk of tax evasion. The goal of tax aggressiveness is, of course,
minimization of the tax burden, increase of income and maximization of shareholders' assets.
According to Nwaobia and Jayeoba (2016), tax aggressiveness aims to reduce tax liability,
resulting in a positive impact on the firm's cash flow and its after-tax increase. Desai and
Dharmapala (2007) highlighted that tax aggressiveness is relatively beneficial to shareholders
through reduction in tax liability, tax savings and hence increase in earnings per share as well as
19
market price of shares. The purpose of tax aggressiveness is tax management and reduction of
taxable costs. Frank, Lynch and Rego (2009) opined that tax aggressiveness refers to
manipulation to reduce tax liability through tax administration. Boussaidi and Hamed (2015)
note that the concept of tax aggressiveness can have multiple concepts, references and even
different ways of measurement, but most of them seem to have the same meaning and the same
purpose, which differ in their effects on the health of society. Bruce, Deskins and Fox (2007)
argue that tax aggressiveness is a set of zealous actions taken by companies to reduce their public
debts. Tax aggressiveness is a strategy applied by managers, a set of processes, procedures,
resources and options aimed at maximizing income after all the company's obligations to the
state and other stakeholders (Boussaidi & Hamed, 2015). Steps / measures leading to tax
aggressiveness in order to reduce the tax burden may be legal or illegal depending on the extent
to which the manipulation of the tax burden is carried out within the framework of the tax laws.
Tax aggressiveness refers to the legal use of the tax regime to one's own advantage, to reduce
owed tax, means falling within the scope of the tax law, tax evasion, on the other hand, refers to
the so-called general term, which is the effort of companies and management to circumvent taxes
with an illegal meaning (Koanantachai, 2013) . The goal of tax aggressiveness is therefore a way
of tax savings with the aim of ensuring the transfer of wealth from the government to the
company's shareholders. Tax aggressiveness according to Frank et al. (2009) is an action
designed to reduce taxable income by means of an appropriate tax plan, which may or may not
be classified as tax evasion. Although not all acts committed may be against the rules, but the
more a firm uses them, then it would be considered more tax aggressive (Sari & Martani, 2003).
Hite and McGill (1992) and Murphy (2004) emphasized that tax reporting aggressiveness is
when a firm implements a certain tax policy and one day there may be a possibility that the tax
policy will not be audited or challenged by law; but this action still has the risky potential of an
uncertain final resolution of obeying or disobeying the law. According to Lee, Dobiyanski and
Minton (2015), because the line between legal and illegal behavior is not clear, the legality of a
company's tax position is determined by the authorities only after the fact, but there is no clear ex
ante distinction between legal tax aggressiveness and illegal tax evasion. In the context of this
study, tax aggressiveness is simply the transmission of government strategies through managerial
opportunism at the expense of shareholders. Lee et al. (2015) concluded that agency theory is a

20
suitable theoretical basis for explaining how multiple parties on a company's board of directors
tend to reduce tax liabilities.

Tax aggressiveness with CEO attributes as a CEO decision is important for sustaining firm
performance. One sector has been selected to provide a comprehensive picture of business
investment opportunities in the textile sector listed on the Pakistan Stock Exchange (PSX).
Therefore, the main objective of this study is to examine the relationship between tax
aggressiveness and firm success in the context of CEO characteristics.

H1: Tax aggressiveness is positively related to firm performance.

2.2.2 CEO Attributes and Firm Performance

Background information about CEOs is critical to management appointment processes and

influences business efforts (Hambric & Mason, 1984). A thorough examination of CEO
characteristics and their impact on corporate strategy is needed to support the overall
examination of boards of directors (M.Jensen & Zajac, 2004). In this study, we propose to assess
the impact of CEO characteristics on tax aggressiveness and company performance. CEO
leadership is considered a key element in the revival of organizations (Tichy & Devanna, 1986),
as well as key to the top management of large firms (Katz & Kahn, 1978) and nations (Burns,
1978; House Spangler and Woycke, 1991). According to academic and popular literature, the
CEO is recognized as the most powerful organizational member of a forward-thinking
organization (Hambrick, 1991; Hosmer, 1982; Pearce, 1981). CEOs' legal authority, their
extensive organizational knowledge, and their significant influence over the company's internal
operations and strategic direction are factors that contribute to their dominance (Beatty & Zajac,
1987; Mizruchi, 1983; Roth, 1995). Additionally, CEOs have been said to “set the tone for the
entire business” and are “the head of the company” (Wheelen & Hunger, 1990). (Norburn,
1989).

In addition, CEOs are excellent research targets because they are often the most prominent and
powerful managers within a company. According to cognitive psychology and management
studies, there are several ways in which women and men differ when it comes to becoming
CEOs. These differences include leadership styles, effectiveness, communication skills,
21
aggressiveness, risk aversion and decision-making. Women provide a range of perspectives and
ideas during interviews, Fondas and Sassalos (2000) argue, which helps them reach better
conclusions. Some research findings suggest that a firm's creative activities, such as research and
development and investment in brand equity, are positively affected by the presence of male
CEOs. We all understand that building brand equity through marketing and innovative product
design is expensive and dangerous (Banker et al. 2014). Male CEOs are more likely to make rash
decisions because they tend to be overly optimistic about project outcomes, leading them to
invest more money in them (Bernasek and International Entrepreneurship and Management
Journal Shwiff 2001; Hirshleife et al. 2012). Additionally, some evidence suggests that female
CEOs are less risk averse.

According to several studies, women are often more effective than men in facilitating the
exchange of ideas and knowledge, resolving conflicts, and inspiring and motivating others. This
information can provide companies with a variety of perspectives and problem-solving
techniques that will greatly enhance their innovative operations. Particularly noteworthy is that
the sustainable growth paradigm seems to have received widespread attention that current
concepts of conventional growth lack (Mensah 2019), and is also gradually becoming a priority
for the business sector (Mukherjee and Sen 2019b). A company may be able to achieve its short-
term goals only by optimizing growth, but not its long-term goal of “generating value”
(Ramezani et al. 2001). When organizational expansion exceeds the rate of sustainable growth,
value creation peaks, then declines rapidly (Ataünal et al., 2016). Moreover, managers devote
great effort to building and maintaining a great reputation in general (Schulz and Flickinger
2018). They did so because they understood the importance of a company's reputation as a
precious intangible asset in the rapidly changing and brutally competitive environment of the
modern business world (Deephouse 2000; Barney 1991). This understanding guarantees the
longevity of businesses. It is not yet known whether the personality of the CEO has an impact on
the company's reputation and long-term success due to strategic relevance.

2.2.3 CEO Experience and Firm Performance

22
Another topic of discussion is how the CEO's length of employment affects the company.
According to one study, a CEO's choice of creative projects is positively influenced by long
tenure. Longer tenure provides CEOs with the opportunity to develop their social capital,
knowledge, and authority while using internal and external data to improve their decision-
making abilities (Souder et al. 2012; Xie 2014; Kao and Chen 2020). Branding is one of the
high-risk expenditures businesses make that requires a significant amount of information
gathering. As a result, CEOs with better business knowledge and expertise are more likely to
accept such projects.

Sitthipongpanich and Polsiri (2015) argue that the many experiences that come with age help
you make wise decisions. experience partly reflects cognitive capacity, psychological state, risk
preferences, and values, all of which influence how a corporation makes decisions (Serfling
2014). Shorter-tenure CEOs, on the other hand, focus more on profitability to keep their jobs
and, as a result, venture into low-risk ventures. When analyzing their impact on business success,
career experience is a powerful asset that should not be overlooked. Wang et al. (2016) found a
positive correlation between a CEO's prior industry experience and company performance.
Experienced CEOs bring their own experience as well as references to previous colleagues and
institutions (Geletkanycz & Boyd, 2011).

Career experience is a powerful attribute that must not be overlooked when assessing their
impact on business performance. Wang et al. (2016) found a positive association between firm
success and the CEO's previous experience in the sector. Fischer and Pollock (2004) found a
favorable correlation between CEO prior experience and company effectiveness. But according
to another study, seasoned CEOs might be overconfident, which could reduce company value
(Ting et al., 2016). Experienced CEOs offer connections to previous employers and
organizations in addition to their own expertise (Geletkanycz & Boyd, 2011). Long professional
experience also contributes to a long social network.

Moreover, according to previous studies, highly experienced CEOs invest significantly even
when cash is scarce. This may be due to deep knowledge of tax aggressiveness (Virany et al.,
1992). Hu and Liu (2015) argue that social relationships reduce information asymmetry and
increase the possibility of external sources of financing. As a result, CEOs with diverse work
histories tend to be less sensitive to investors' cash flows.
23
Long-term employment also creates a significant amount of social ties. Managers from different
work environments can create the greatest investment plan by obtaining relevant information
(Granovetter, 1973). In addition, there is evidence in the literature that highly experienced CEOs
invest significantly even when they are underfunded

H2: Career experience of CEO is positively related to firm performance.

2.2.4 The Ownership of CEO and Firm Performance

According to researchers (Finkelstein 1992; Onali et al. 2016; Wu et al. 2011), both in theory
and in real practice, CEO ownership is renowned as one of the main and better sources of power.
This is because we know that corporate ownership is considered a major element in the agent-
principal theory. The connection between CEO ownership and most important issues is very
strong. As Zhang et al. (2016) also found that in a company, there is a significant relationship
between CEO ownership and board decision, management system decision, employee and
member compensation, member designation and many other important decisions.

There are many assumptions and perceptions about CEO ownership in a company. Most of them
are that the members of the company assumed that if the company was led by a senior manager,
then it must be in the interest of the company to be bitterly gone, and they must aim to work for
the betterment of the company. Adams et al. (2005) in their study investigated that there is
variability in the impact of CEO ownership on organizational performance. Most studies have
shown a positive relationship between CEO ownership and firm performance. They confirmed
all these predictions with empirical scraps of evidence. Various other studies have also revealed
that there is a relationship between the performance of the CEO's own company. This was also
identified by Onali et al. (2016) measuring the effect of CEO ownership on firm performance in
various European banks. The researcher tried to point out in the research the impact of all these
on the strength of dividend policy using panel data over a period of 9 years. As measured by
Tobin's q and market-to-book value, CEO ownership has a significant effect on organizational
performance.

Here, we have also analyzed some other studies that have provided mixed results on the
relationship of CEO ownership to company performance. These were the mentioned studies that
24
showed and found a negative impact between CEO ownership and firm performance, for
example Kaczmarek et al. (2014) examined CEO ownership in an attempt to identify the
outcome of interlocking directorships. In this study, the researcher found that CEO ownership
has a negative impact on firm performance. Another study also revealed that there is a non-linear
relationship between CEO ownership and company performance, but there is a U-shaped
relationship between CEO power and company value. Limbach et al. (2016).

Likewise, Adams and Mehran (2012) and Shukeri et al. (2012) found that CEO ownership does
not have such a significant impact on firm performance. They also mentioned a change in the
result that may come in the future just because the time frame has changed and it could give a
positive result if future studies reveal some other dimensions as well. All of these researchers
reported negative results that not only is there a positive association between CEO and firm
performance, but there is also a negative impact of CEO ownership on organizational
performance with empirical evidence. As Adams and Mehran (2012) mentioned in their study,
there is no such prior record of a significant impact of CEO ownership on firm performance.
They mentioned that other studies may get different results depending on the data and different
analyses. All of them found that the nature of the relationship is negative, but over time, culture,
customs and practices in different settings have changed, which also affects the result revealed
by previous researchers.

So by going through the inconsistencies in the findings of previous studies examined to further
extend this study may discover more positive results by conducting research in a different
context because the nature of CEO ownership in different industries is also different, so to study
in a different context of the relationship between CEO ownership and firm performance may lead
to different findings. To find different results, this study reveals the specific impact of CEO
ownership on firm performance by studying data from financial sectors of developing countries.
It is not easy to do the study by taking one factor of business education, which is an MBA. This
is challenging because an MBA does not cover all aspects of business education.

In 2016 (Onali et al.), CEO ownership is considered a symbol of authority. Adams et al. (2005)
found a positive relationship between CEO ownership and firm performance. However, there is
not much research to offer facts to disprove this. For example, CEO ownership has a negative
effect on firm performance, according to Fahlenbrach (2009). According to research by Adams
25
and Mehran (2012), CEO ownership and business success are unrelated, contrary to popular
belief. According to Jensen's (1986) study, the interests of managers align with those of
shareholders as the percentage of shareholder ownership increases. In addition, CEOs who have
a higher stake in the company are prepared to make risky investments with high returns (May
1995). According to Pawlina and Renneboog, co-owner managers also seek to increase
shareholder value, and thus as manager ownership increases, the sensitivity of investments to
cash flows decreases (2005). Agency theory says that managers who own a significant amount of
stock are consequently more long-term oriented. Ownership concentration had, according to
Ghosh et al. less impact on capital expenditure than expected.

H3: There is a significant impact of CEO ownership over the firm’s performance.

2.2.5 CEO Financial Education and Firm Performance

If we talk about education, it is important, it was emphasized by the pioneers, that managerial
effectiveness depends on the achievement of the level of education. This showed how important
education is for managerial activities in an organization. Education is also a factor through which
we can analyze the skills of the employees and this helps the management in deciding the
remuneration in the organization for them. Education is considered a tool that also helps in the
promotion of an employee. Promotion in their positions by giving them some bonuses and
increments on monthly or yearly basis may vary.

Education also builds the standard. It has also been investigated in the study that better level of
education has significance over raising the level of management and also makes them capable of
taking the best and best decisions for the betterment of the organization. (Devil 2003). Most
previous studies have also examined the link between education and organizational leadership.
Another study found the impact of CEO characteristics on the industrial sector. In a study,
Rajagopalan and Datta (1996) examined the associations between CEO characteristics and an
inclusive set of industry conditions. In this study, the researcher took data from the textile sector
of Pakistan and analyzed it and found that there is a significant effect of education on the firm
and CEO ownership.

26
This study shows that the level of education of the CEO also has a large impact on company
performance. The level of education of the CEO is very important for the better performance of
the company. The level of education perfectly corresponded to the performance of the company.
Similarly, a study was conducted on those companies listed on the Pakistan Stock Exchange to
investigate the impact of CEO characteristics on firm performance Kokeno and Muturi (2016).
This study investigated how CEO characteristics created an effect on company performance. In
this study, many different variables were used to test the impact of CEO characteristics on firm
performance, all variables are consistent with CEO characteristics. Thus, after research, they
found that CEO age and education have the most significant positive impact on organizational
performance.

There are also several researches. These findings differ from those of previous research and do
not suggest a link between CEO characteristics and company performance. For example, a study
by Gottesman and Morey (2010) using data from US corporations found that there is no
statistically significant positive association between CEO characteristics and company
performance. The researcher in this study used the same measurement instrument used in another
Tobin-q study. In this study, only market measurement was used to identify the relationship.
Various studies have also examined the CEO-firm relationship using different parameters. Some
studies have also used the factor of business education to find a link between CEO and firm
performance.

Lindorff and Jonson (2013) tried to show a link between the business education of the CEO and
the success of the firm, but their research shows that there is no such relationship between the
two. The success of the company is not significantly influenced by business education. Business
education is an overworked element that does not improve organizational success. However, they
continued to study CEO education with changes in stock price and dividend yield as measures of
performance by taking Master of Business Administration MBA data as the only measure of this
study.

There are other studies that continue to research CEO characteristics, ownership and education.
Similarly, a study was conducted where they investigated the role of education in firm
performance. They extended this research by Darmadi (2013) on this CEO to Indonesian firms to
investigate the effect of CEO and board education on firm performance. However, their result
27
showed a positive relationship between the CEO, board members and firm performance. The
analysis conducted by the study found that the education and qualifications of the CEO as well as
the board members are important. They mentioned that a person who obtained a qualifying
degree from a university mattered a lot more than a person who did not have such a qualifying
status. They stated that this person with a high degree is doing well compared to another
qualified person without a prestigious qualification.

As in the same period, further research was conducted on CEO education levels. The basic goal
of this research is to verify the impact of the CEO's level of education on the company's
environmental behavior. This research was conducted by Huang (2013) on 392 firms from 2005
to 2010. This research was conducted only to measure the environmental performance of the
firm to find out that the reliability of the evaluation of CSR in cooperation was taken as a
measure to find out the impact of the CEO's qualification on environmental performance. The
study shows that the social responsibility of the CSR cooperation is strongly influenced by the
education level of the CEO. The main influence of the CEO's qualification or education level is
the most important Master's degree in Science (MSc) and MBA on the firm's environmental
performance. This implies that the level of education and the degree of the CEO have a
significant effect on the firm's issue, as most studies have examined positive relationships
between these two factors. However, studies have also shown that the difference in time period
and other factors can change the results.

Numerous studies have examined CEO education, particularly in relation to financial education
and its impact on business performance. CEOs with business experience show good financial
success (Bertrand & Schoar, 2003). Managers who are financially literate help develop a better
financial budgeting plan, according to Bhagat et al. (2010). The findings were challenged by
Gottesman and Morey (2010) who showed that businesses led by CEOs with an MBA do not
outperform those led by CEOs with no prior financial experience. Koyuncu and Yilmaz (2010)
argue that CEOs with technical education perform better than CEOs with financial knowledge.
Furthermore, according to certain researches, company performance is not related to the
education of its CEOs (Fujianti, 2018).

According to Tyler and Steensma, CEOs with a technical background are more aware of the
latest technological advances and are therefore more likely to have a favorable influence on
28
investment (1998). According to Kimberly and Evanisko (1981), there is no relationship between
different educational majors and different levels of creative investment. According to a study by
Mohamed et al. (2014) and Malmendier and Tate, CEOs with financial education are less likely
to exhibit irrational behavior because they have knowledge of business markets and
macroeconomic policies (2005a). These CEOs help businesses reduce average expenses because
they have good control over financial costs.

Many studies have been done with some different analysis like Koyuncu et al. (2010) examined
the effectiveness of CEOs over firms. The goal of the researcher is to find out the role of CEO
education in the organization. The study used a sample of 29 CEOs of textile companies selected
from textile firms listed on the Pakistan Stock Exchange and data from 2017–2021. This is a
huge sample for examining the relationship between CEO education and firm performance. This
study showed a positive relationship between the two.

The findings of the study revealed that when an organization is managed by a CEO who has a
strong background in subjects related to their particular operation, they manage the affairs of the
organization better than a CEO who is qualified and educated in such other subjects related to the
operation. For example, a CEO who has an engineering degree and is particularly proficient in
these related subjects, so that he deals with the engineering affairs of the firm just as well as if
the CEO does not have that type of qualification. Firm performance is better if it is led by the
CEO having a good education, as most studies have revealed empirical evidence that education if
the CEO matters.

The result of this study showed that the education of the CEO has a positive significant impact
on the performance of the firm and also on the work affairs of the firm which are also affected
with it. Using these various studies, we have said that education is an important element that has
a great impact on organizational performance. Koyuncu et al. (2010) concluded and
hypothesized that there is an effective relationship between CEO education and firm
performance. This study further revealed the importance of getting a qualified and experienced
CEO. It found that if a firm is underperforming, it needs to hire a CEO with good experience in
operations compared to marketing, legal, finance and accounting. Researchers attach more
importance to the functioning of the firm compared to marketing. They showed that their study
was supported by evidence that a firm must have a CEO who has operational experience is more
29
likely to achieve better performance. Daellenbach and McCarthy (1999) also stated that a firm
must be very diligent in recruiting the CEO and top management of the firm. It must focus on the
selection process so it must be beneficial to the organization and its performance. Most
companies aim at innovation and new product development, so for all these interests, the
company must select a highly qualified and experienced operational CEO and management.
Based on the above studies, a hypothesis was developed.

H4: the education of a CEO has a significant positive impact on the performance of a firm.

2.2.6 Firm Growth and Firm Performance

Business growth dynamics and profitability (or profit rate) are key issues for both practitioners
and scholars (Goddard et al., 2006). In theory, if the firm's growth rate is unrelated to the firm's
size and the previous growth rate, the firm's growth will occur in a random fashion and the
variation in firm size will evolve indefinitely. This is what the Law of Proportional Effect (LPE)
says. This stochastic growth process assumes infinite industrial expansion in the long run.
However, if there is a negative correlation between growth rate and firm size, firm growth will
eventually converge. Market competition, in line with Mueller (1977), drives the profitability of
a business to converge at a certain level.

Business development is vital for entrepreneurs, bosses and financial backers, as well as
providing a sensitively accurate projection of business exhibition; business income is the main
activity through which company resources and valuable learning experiences are converted into
cash (Hand, 2005). Trades can be variously referred to as turnover, trade income or essentially
trades. As reported by Fitzsimmons et.al, (2005). Many surveys often use business development
as a proportion of firm development and claim that a high level of development demonstrates a
firm's superior presentation. Robson and Bennett (2000) examined the development of British
firms and traced a positive link between the development of advantages and deals. Heshmati
(2001) focused on small firms in Sweden and estimated developments in three unique ways. He
used the number of agents, stores and resources as a proportion of development. The goal is a
development that is productive in terms of business and income, risk-adjusted and rewards
current owners (Kennon, 2017).

30
H5 Firm growth is positively related to the financial performance of the firm.

2.2.7 Summary of Hypothesis

H1 Tax aggressiveness is positively related to Firm Performance

H2 Career experience of CEO is positively related to firm performance.
H3 There is a significant impact of CEO ownership over the firm’s performance.
H4 The education of a CEO has a significant positive impact on the performance of a
firm.
H5 Firm growth is positively related to the financial performance of the firm.

2.3 CONCEPTUAL FRAMEWORK

It is a set of important concepts and core values that are used in game planning in subsequent
demonstrations (Biklen, 2003). A plan calculated as part of the test execution will be done to
show the relationship between the dependent and independent variables. Firm Performance is the
dependent variable of this study. The independent variables are venture choices, CEO ascribes,
firm growth, firm age and firm size.

The relationship between dependent & independent variables.is determined by the following
system:

Tax
Aggressiveness
31
 CEO
Characteristics

Firm’s Age
Firm Performance

Firm’s Size

Firm’s Growth

CHAPTER 3

3 DATA AND METHODOLOGY

In this chapter, the methodology of the study is presented. A method is a set of tools and
procedures for collecting and analyzing data with the intention of generating new knowledge and
describes a type of research (Holme & Solvang, 1997). Finding new approaches to a current
problem, or simply correcting it, are steps included in methods and strategies (Holme & Solvang,
1997). The academic writing approach chosen is crucial as it guides the author or researcher to
achieve results that are appropriate for their research objectives. Many educational textbooks
offer a wide range of assessment methods; in this section, the authors of the chosen methodology
will explain why they were chosen. Strategies and strategies are simply the processes and actions
used to solve existing issues or to develop new ideas for the situation at hand (Holme & Solvang,
1997). The chosen academic writing style is important because it guides the author or researcher

32
to obtain results appropriate to their research objectives. Several books offer a variety of
methods; in this section, the authors of the chosen strategies will explain why they chose them.

3.1 RESEARCH DESIGN

The research design is a framework that describes how a study is conducted and provides
guidance regarding the research sample, data collection methods, and research methodology. It
outlines the framework of our research methods and methods.

3.2 STUDY POPULATION

Because the objective of this study is to estimate the impact of tax turbulence on Firm financial
performance. All listed firms are included in the study population. Of course, not all companies
in a country disclose law requires their financial information and listing of companies on a
national stock exchange. In Pakistan Stock Exchange, 375 Companies are listed, so this number
of companies will be the population of survey.

3.3 STUDY SAMPLE

As indicated in the introduction, this study aims to assess CEO characteristics, as they affect
business performance over time. In this study, this study focuses on corporate growth factors i.e.,
capital growth, total assets, total debt and equity, whether it is increasing or not and what are the
roles of their CEOs and how CEO characteristics influence corporate taxes and corporate
effectiveness.

3.4 METHODOLOGY

Our analysis is based on listed firms of Pakistan of which companies’ data of past 5 years are this
study’s sample size. For calculating results this study applied descriptive statistics, correlation
and Classical Linear regression model.

33
In its CLRM, the study uses the following mathematical model.

Profitability = α + β1 Investment + β2 CEO Characteristics + β3 Age + β4 Size + β5

Growth + e

After accounting for this study used 4 important CLRM assumptions to test whether or not the
results were generalizable. The action research method is used in this study. Pakistan Stock
Exchange provided the financial statement data used as secondary data in this study. As a result,
the financial statements have been prepared based on the balance sheet and income statement for
the financial year ended December 31 of the period under review. The following criteria were
also fulfilled in order to determine the scope of the study:

1. The firms must be listed on the Pakistan Stock Exchange during the designated study
period.
2. From 2017 through 2021, continuously publish financial reports.

CHAPTER 4

4 RESULTS AND DISCUSSIONS

4.1 RESULTS

Descriptive Statistics

Descriptive statistics are used to primarily assess the performance of the data collected. It detects
the health of the data against any changes. Different methods of inferential statistics assume that
the data are suitable for analysis purposes determined for descriptive statistics.

Further analysis shows that the probability of jarque-bera for each series is insignificant
indicating that the data collected are normally distributed. Data normality is one of the four
34
 important assumptions of the classical linear regression model (CLRM). Jarque-bera is the test
that determines whether the data normality assumption is violated or satisfied.

The study used descriptive statistics for all the variables and all the results are shown in table
4.1 . According to the findings, the average values obtained for ROA, CAPEXTOC, TGA,
CEOOWN, CEOEXP, CEOFEDU and FAGE are 0.206211, 1.413324, 2.603109, 1.386586,
0.137931, 0.862069, 3.662069, 0.655186, and 1.364142 respectively.

The maximum value obtained for ROA, CAPEXTOC, TGA, CEOOWN, CEOEXP, CEOFEDU
and FAGE are 9.080000, 4.963870, 2.92210, 4.178000, 1.000000, 1.000000, 6.500000,
3.570000 and 1.890900 respectively. Also the minimum value obtained for ROA, CAPEXTOC,
TGA, CEOOWN, CEOEXP, CEOFEDU and FAGE are -0.320000, -2.36630, 4.072141,
0.740000, 0.000000, 0.000000, 1.300000, 0.050000 and 0.056000.

Table 4.1: Descriptive Statistics

ROA CAPEXTOC TGA CEOOWN CEOEXP CEOFEDU FAGE LEV MTB

 Mean  0.206211  1.413324  2.603109  1.386586  0.137931  0.862069  3.662069  0.655186  1.364142

 Median  0.029000  2.630000  1.021309  8.820000  0.030000  1.000000  3.233000  0.600000  2.880000

 Maximum  9.080000  4.963870  2.92210  4.178000  1.000000  1.000000  6.500000  3.570000  1.890900

 Minimum -0.320000 -2.36630  4.072141  0.740000  0.000000  0.000000  1.300000  0.050000  0.056000

 Jarque-Bera  1.358455  2.173803  2.334879  1.986879  1.416656  1.416656  1.322142  1.591227  1.449109

 Probability  0.192300  0.094250  0.083284  0.119420  0.188302  0.1823403  0.190134  0.125477  0.184547

 Sum  2.990066  2.049320  3.764211  2.010550  2.000000  1.250000  5.310000  9.540020  5.978006

 Sum Sq. Dev.  1.467944  3.878152  3.784321  2.063081  1.724138  1.724138  1.931414  3.800871  11.47625

 Observations  145  145  145  145  145  145  145  145  145

4.2 CORRELATION ANALYSIS

Correlation analyzes are conducted in order to assess the generality of pairs of variables. It
describes the relationship between the two ariables in terms of a) magnitude and b) direction.

35
The resulting correlation (r) value ranges from 0 and 1 (when the sign is ignored). Four
categories can be laid down from r:

a) No correlation, and that really intends that there is no connection between the two factors
included;
b) Weak correlation, and that really intends that there is a degree of relationship between the
factors above 0% yet underneath half;
c) Strong correlation, and that really intends that there is a degree of relationship between
the factors above half yet underneath 100 percent; and
d) Perfect correlation, and that actually intends that there is 100 percent of an affiliation.

According to the results reported in table 4.2 shows that the relationship between firm’s
investment (CAPEXTOC) and all independent variables is weekly. Furthermore weekly
correlations are also obtained between both dependent variables.

Table 4.2 Correlation Analysis

ROA CAPEXTOC TGA CEOOWN CEOEXP FAGE LEV MTB

ROA  1.000000
CAPEXTOC  0.402469  1.000000
TGA  0.513360  0.305691  1.000000
CEOOWN  0.642147 0.236046 0.190248  1.000000
CEOEXP 0.481999  0.364106 0.322355  0.188550  1.000000
FAGE 0.467283  0.258773  0.233102  0.213292  0.203766  1.000000
LEV 0.597737 0.489310  0.412236  0.317705 0.311921 0.314307  1.000000
MTB 0.428319  0.476768  0.567277 0.331153 0.334826  0.242039 0.464174  1.000000

4.3 REGRESSION MODEL

Regression is used in order to check the dependence of one variable on others. Specifically, the
Classical Linear Regression Model (CLRM) has been used in this study to estimate the

36
objectives of the study as described in chapter 1. Some key results of CLRM are reported in table
4.3 below.

Table 4.3 Classical Linear Regression Model

Variable Coefficient Std. Error t-Statistics Prob.

C 3.304218 0.6977 4.735764 0.0002
CAPEXTOC 4.335205 1.9150 2.263746 0.0384
TGA 3.936511 1.6262 2.420676 0.0286
CEOEXP 0.383618 0.1522 2.501841 0.0244
CEOFEDU 0.594752 0.3016 1.971242 0.0571
CEOOWN 0.226785 0.0735 3.083770 0.0025
FAGE 0.120589 0.1509 1.365134 0.0694
LEV 0.432244 0.1783 2.422841 0.0287
MTB 0.030295 0.3876 0.077985 0.9380
Adj. R2 0.3922
F-statistic 5.9156
Prob. 0.0003

4.4 FINAL CLRM RESULT

After solving the 4 critical assumptions of CLRM, Table 4.9 shows the final results of CLRM
after solving. The results show that (CAPEXTOC), (TGA), (CEOEXP), (CEOFEDU),
(CEOOWN), (FAGE), (LEV) have a significant relationship with firm performance (ROA), but
there is no relationship between (MTB) and (ROA). As for the independent variables, each
alternative hypothesis is accepted. Although there is little correlation between MTB and fixed
power. The contrasting hypothesis of this connection is thus negated. While CEOFEDU has a
weak link in contrast to business performance, CAPEXTOC has a good relationship.

According to the results obtained from these analyzes carried out, when one unit increases, the
performance of the firm also increases. Similarly, investment (CAPEXTOC), investment in fixed
assets (TGA), CEO experience (CEOEXP), CEO financial education (CEOFEDU), CEO
37
ownership (CEOOWN), firm age (FAGE) and firm size will also affect in the same direction
(LEV) or when one unit increases. In addition to the already mentioned independent variables,
the financial performance of the company is influenced by other factors. The results show these
additional elements as constants (C). The results show that other elements also contribute to a
firm's financial performance. In addition, in this study, to examine goodness of fit for regression
models with different proportions of independent variables, use adjusted R-squared. Adjusted R2
will never be greater than or equal to R2 and we can see in the results that the adjusted R-squared
value is less than R-squared. The results show that 39% of the variance in firm performance is
explained by investment (CAPEXTOC), investment in fixed assets (TGA), CEO experience
(CEOEXP), CEO financial education (CEOFEDU), CEO ownership (CEOOWN), firm age
( FAGE), firm size (LEV), while other factors account for the remaining 61% of the variance
(C). This review uses F-measures. Whether your direct relapse model fits the information better
than a model without autonomy is not completely set in stone by the F-test, which is of great
importance. F-tests can examine the fit of different direct models because they can examine
different model terms without a momentary delay. The findings show that the review model fits
the information in light of the fact that the probability value of the F measure is huge (p=0.00).
Essentially speaking, determining how monetarily fruitful an association is depends heavily on
the autonomous factors that have been remembered for the review model.

4.5 DISCUSSION OF RESULTS

Causal Relationship between Tax aggressiveness and Firm Performance

The outcomes as stated in the table 4.3 demonstrate how the firm Performance is affected by tax
aggressiveness. Tax aggressiveness increases the profitability also increases. In addition, that tax
aggressiveness has a significant effect on firm performance. In general, by means of multiple
analysis, the results found. The variable tax aggressiveness that is measured shows a positive
impact on profitability, i.e., more aggressive companies from a tax standpoint have higher
profitability. If a firm applies the policy of tax, it increases the pricing because of the taxes on the
firm, in terms all tax is shifted to the customers. Due to this reason the firm’s expenses decreases
that increases the profit. A company’s share prices are increasing means that its firm growth is

38
increasing, also, the growth in the ratio of profitability of the firm. Equity increases due to
increase in the share price, due to the increase in the equity the availability of funds also
increases through which we can knock the investment opportunities which the return; return on
asset.

Causal Relationship between CEO Career Experience and Firm Performance

The results as stated in table 4.3 show how firm Performance affects the determinants including
CEO Performance Experience. The results show that CEO EXP is positively and significantly
related to the sample firm’s performance in this study. Thus, this study supports the alternative
hypothesis H 2 that when constructing the effect of a trait in performance evaluation, job
experience is an important factor that should not be overlooked. According to Wang et al.
(2016), the CEO’s prior business experience is positively related to firm success.

Causal Relationship between CEO Ownership and Firm Performance

The results as shown in table 4.3 show how firm Performance is affected by its determinants
including CEO Ownership. The results indicate that CEO OWN has a significant and positive
relationship with Firm performance of the sample companies in this study. Thus, this study
supports alternate hypothesis H 3 because in 2016 (Onali et al.), CEO ownership is seen as a sign
of control. Adams et al. (2005) found a positive relationship between CEO ownership and firm
performance.

Causal Relationship between CEO Financial Education and Firm Performance

The results as shown in table 4.3 show how firm Performance affects the determinants including
CEO Financial Education. The results show that CEO FEDU has a non-significant and positive
relationship with Firm performance of the sample companies in this study. Thus, this study
supports the alternative hypothesis H 4 because the education of the executive director has
consisted of studies, especially on the study of finance and its impact on performance. CEOs
with entrepreneurial skills have a good track record of financial success (Bertrand & Schoar,
39
2003). Managers who are financially educated aid in the development of a better financial budget
plan, claim Bhagat et al. (2010).

Relationship between Firm Growth and Firm Performance

The result stated that how Firm performance affects firm growth (MTB). The results stated that
firm growth is significantly related to the performance of the sample firms in this study. This
study therefore fails to support the alternate hypothesis H5 which stated that Firm performance
does not affect firm growth.

CHAPTER 5

5 CONCLUSION AND RECOMMENDATION

5.1 CONCLUSION

This study tests the impact of tax aggressiveness on firm financial performance and examines
CEO attributes that significantly affect firm performance in taxation decisions. This study is
stimulated by many previous literatures and researches on the impact of tax aggressiveness and
firm's financial performance. Efficiency in business operations (profitability) is often seen as a
key component of an organization's long-term expansion and success. The relationship between
financial or investment choices and company performance has been examined. Their research
shows a strong and positive correlation between an organization's investment decisions and
success. As tax aggressiveness opens up new employment opportunities and paves the way for
economic growth, it is hard to overlook the impact it has on the quality of life in society. CEOs
with high ownership stakes, seniority and long tenure have been shown to perform better.
Moreover, CEOs who have more financial knowledge and work experience outperform CEOs
who have less education and experience. We argue that these findings can assist decision makers
in selecting and retaining CEOs who exhibit specific characteristics in light of societal demands.
The findings suggest that improving business performance in emerging economies can benefit
40
from a sophisticated, proactive and independent corporate governance framework. According to
earlier research, CEOs influence business success. In fact, the CEO's influence on company
performance grows over time. However, studies have paid less and less attention to the idea that
CEOs play a significant role in shaping corporate presentation. Based on strata theory, scholars
have repeatedly suggested that a CEO's background can be used to describe a firm's degree of
success. As a result, the researcher finds that businesses that invest significantly in land,
machinery, and plants outperform their competitors, and businesses that focus on their top
management positively affect their firm's performance.

5.2 IMPLICATIONS

Investment analysts will benefit from this study. They will be able to make wiser investment
judgments if they are aware of the taxation decisions of corporate indices and the relationship
between profitability and firms. Many of the company's stakeholders will find this survey useful
in determining the best course of action to follow in order to resolve potential shareholder
conflicts the company may have with management. The conclusions of the study will help
shareholders in choosing the best CEO to lead the company. By conducting more research using
a number of models, it may be possible to determine the relationship between CEO attributes and
company qualities. Furthermore, the knowledge gained from this study will benefit people,
educational institutions, research organizations and the academic sector. The findings will help
pension trustees to advise pension trustees to make wise choices when investing their pension
money. The results of this study would be useful for potential local and foreign investors who are
considering setting up money management and insurance companies in Pakistan.

Recommendations

The study examines the effect of tax aggressiveness on the financial performance of the firm,
which tracks the effect of the CEO attribute on tax decisions. Our analysis is based on the textile
sector of Pakistan, from which data of 29 companies for the last five years constitute the sample
size of the study. Future studies may increase the sample size, i.e. increase the number of years,
compare industries; compare the industrial sectors of rich and developing countries; or use panel
data analysis with results broken down by industry. The results of this study are not suitable for

41
small businesses. Future studies can conduct research work on small businesses. Similarly, future
studies can also be done by firms that are not yet listed on Pakistan's PSX. This study only
analyzes three CEO attributes of the textile industry, future researchers can take more CEO
attributes as their research variables. The results of this study will assist managers and company
owners in creating profitable stock investment plans that will enable them to fully benefit from
the growing stock market in a liberalized economy. This will give us a head start on the market.
This study seeks to significantly expand our understanding of corporate investment strategies,
particularly as they relate to companies listed on the PSX. The results of the study will be useful
for investment experts. Furthermore, this study is based on the textile sector listed in the PSX. It
can be extended to various industries and economies around the world.

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