Global Tax Fraud Controversies Contextualized in A Dynamic Framework of Corporate Fraud Pyramid
Shah, S., Akbar, S., Ahmad, S., Li, J., Akbar, S. Ahmad, S.
Shah, S., Akbar, S., Ahmad, S., Li, J.,
Akbar, S.
Ahmad, S.
Publication Date
2026
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© 2026 The Author(s). This is the Author Accepted Manuscript of the article distributed under the Creative Commons CC-BY license (https://creativecommons.org/licenses/by/4.0) in accordance with the University of Bradford Rights Retention Policy.
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Abstract
Purpose:
This study explores the determinants of corporate tax fraud utilizing a ‘dynamic framework of the corporate fraud pyramid.’ The debate regarding firm-specific and governance-related attributes explaining corporate tax fraud remains inconclusive, particularly during financial crises. Furthermore, few studies have utilized panel data to examine tax aggressiveness and tax evasion. Additionally, while some studies have investigated the effect of corporate governance on firm performance during a financial crisis, its impact on corporate tax fraud remains unknown. We aim to bridge these gaps by examining the effects of these attributes on corporate tax fraud, including in the pre-, during, and post-2007-2009 financial crisis.
Design/Methodology:
We use a sample of 198 matched pairs of tax fraud and non-tax fraud firms from 30 global jurisdictions for the period 2005-2017. The main source for our data is the Refinitiv (Thomson EIKON) databases. We use a quantitative research design employing Probit regression analysis to explore the immediate environment related to corporate tax fraud and the contextual, governance, and regulatory aspects of the sample firms. We employ an instrumental variable (IV) approach to control for endogeneity and an alternative specification to ensure the robustness of the results.
Findings:
We find that strong internal corporate governance mechanisms decrease the probability of tax fraud controversies. However, a strong regulatory environment, large audit fees, Big4 auditors and firm size were positively associated with the probability of tax fraud controversies. Moreover, higher executive compensation tends to curb the incidence of tax fraud controversies. These results were generally consistent for the pre-crisis, crisis, and post-crisis periods of the financial crisis of 2008.
Research / Practical Implications:
The research extends the contours of academic literature on corporate tax fraud and fraud theories, besides having implications for firm, industry, and country-level tax authorities, regulators, and policymakers, leading to greater transparency and accountability. Regulators will need to pay special attention to corporate board structures and ensure the inception of regulatory policies that can guarantee the existence of effective boards at the firm level. Tax authorities in different countries will be expected to make further efforts in detecting tax fraud, even if firms are operating in strong regulatory environments and are being audited by large audit firms.
Social Implications:
The colossal economic loss perpetrated by corporate tax fraud and its effect on societies across the world are some of the key motivators for pursuing this research. This study's findings help us understand the diverse occurrence of tax fraud in both developed and developing countries, especially in times of financial crises. The policy makers and regulators can pursue mitigating strategies, in the light of the knowledge thus obtained, which can have useful social implications in terms of reduced occurrence of corporate tax fraud.
Originality / Value:
First, we claim the ideation of a ‘dynamic framework of corporate fraud pyramid’ as a theoretical research contribution. We focus on four conceptual determinants: internal corporate governance mechanisms, firm-specific attributes, managerial aspects, and an external regulatory environment. Second, this study contributes to the literature in the context of the 2007-09 financial crisis and shows that strong internal corporate governance mechanisms and firm-specific attributes moderate the relationship between the crisis and corporate tax fraud incidence.
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Accepted manuscript
Citation
Shah S, Akbar S, Ahmad S et al (2026) Global Tax Fraud Controversies Contextualized in A Dynamic Framework of Corporate Fraud Pyramid. Journal of Financial Reporting and Accounting. Accepted for publication.
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