Integrated reporting and corporate tax avoidance among firms listed in the East Africa Community

Corporate disclosure is the primary mechanism through which firms publicly reveal otherwise private firm-specific information (Alharasis, Taha, Abdulmuhsin, Alkhwaldi, & Yaseen, 2025). If firms credibly disclose this information, investors have relatively low-cost access to it, which reduces investors’ reliance on common information signals when assessing firms’ values (Miao, Ouyang, Yao, & Zuo, 2025). Integrated reporting (IR) is the latest novelty in the corporate disclosure practices and one of the most recently discussed issues among researchers, academics and policymaker. Over the past few decades, stakeholders have become much more conscious of IR, particularly in the wake of financial turbulence and corporate financial reporting scandals involving companies, such as Enron, Tyco, Parmalat, WorldCom, One Tel and HIH Insurance. Furthermore, prior research documents capital market benefits associated with “integrated reports” that combine financial and sustainability information (Barth, Cahan, Chen, & Venter, 2017; Wang, Chua, Simnett, & Zhou, 2024). Integrated reports are more comprehensive in scope in terms of the capitals they address than traditional standalone financial and CSR reports because integrated reports combine financial and sustainability information in a single report (Aprile, Alexander, & Doni, 2023).

IR seeks to achieve “financial stability and sustainability” and overcome the shortcomings of corporate reporting practices by concisely and cohesively integrating material financial and non-financial information into an integrated report for the efficient allocation of resources (IIRC, 2013; Hossain, Bose, & Shamsuddin, 2023; Farooq, Zaman, Bahadar, & Rauf, 2024). Presently, it is estimated that more than 2,500 organizations in more than 70 countries have adopted the principles of IR as a tool of communicating how they create value (Hossain et al., 2023).

Prior studies have sought to explain the determinants of IR and its relationship with other disclosure practices (Chouaibi, Chouaibi, & Zouari, 2022; Raimo, Vitolla, Marrone, & Rubino, 2021; Nishitani, Unerman, & Kokubu, 2021; Omran, Ramdhony, Mooneeapen, & Nursimloo, 2021; Fayad, Mohd Ariff, Ooi, Aljadba, & Albitar, 2024; El-Deeb & Mohamed, 2024; Montecalvo, Farneti, & De Villiers, 2018; Permatasari & Narsa, 2022). Nonetheless, little research has investigated the impact of corporate IR on strategic decision-making such as tax avoidance. Corporate tax avoidance (CTA) is the result of corporate balancing of costs and benefits and has become one of the key strategic decisions in the corporate management process (Lv, Meng, Cao, & Liu, 2025). Corporate taxes play a significant role in the provision of public goods and services (Hannah et al., 2023). While tax avoidance is legal, research indicates that it is a global issue that exacerbates budgetary deficits (Marwat, Rajput, Dakhan, Kumari, & Ilyas, 2021). According to the Organisation for Economic Co-operation and Development (OECD) (2019), the average tax paid by corporate entities in 115 countries is approximately 15.0%, which translates to about 3.1% of the gross domestic product (GDP), while the International Monetary Fund (IMF) estimates that the average global tax revenue to GDP ratio stands at 15.4%. However, this ratio remains below the minimum threshold of 20% established by the United Nations that is vital for fulfilling socio-economic objectives. Corporate bodies employ strategies such as increased investment in fixed assets, profit shifting to tax haven nations, base erosion, thin capitalization and IP structuring to reduce their tax obligations (Duhoon & Singh, 2023). CTA results in an immediate enhancement of firms’ cash flows, enabling managers to personally profit from tax planning strategies at the cost of shareholders’ profit (Shams, Bose, & Gunasekarage, 2022; Hanlon & Heitzman, 2010). This transfer of wealth from shareholders to managers often serves as proof of agency problems related to tax aggressiveness (Desai & Dharmapala, 2009; Blaylock, 2016). Several empirical studies associate tax avoidance practices with managerial rent extraction (Jia & Gao, 2021), earnings and accruals persistence (Blaylock, Shevlin, & Wilson, 2012) and earning manipulations (Balakrishnan, Blouin, & Guay, 2019). Furthermore, it has been argued that tax avoidance practices lead to increased information asymmetry (Hasan, Anwar, Zahir-Ul-Hassan, & Ahmed, 2024). Corporate governance demonstrates that financial and non-financial disclosures may limit managerial opportunism in corporate policies (Haider & Nishitani, 2022; Obeng, Ahmed, & Cahan, 2021; Githaiga, 2025).

Nonfinancial disclosure serves a disciplinary function and is frequently linked to heightened visibility and oversight of managerial conduct (Jensen & Meckling, 1976; Balakrishnan et al., 2019; Obeng et al., 2021). Furthermore, if tax avoidance induces agency problems, comprehensive financial and nonfinancial reporting policy may have a disciplinary function, resulting in a reduction in tax avoidance behaviors (Boubaker, Derouiche, & Nguyen, 2022; Efimova, Rozhnova, & Gorodetskaya, 2019). Furthermore, empirical studies establish a link between corporate disclosure practices and tax avoidance in various countries, including France (Boubaker et al., 2022), Australia (Brown, 2020), China (Jiang, Zhang, & Si, 2022), Indonesia (Saragih & Ali, 2024; Nasih, Harymawan, Abdul Rasid, & Putra, 2024) and South Africa (Donkor, Djajadikerta, Mat Roni, & Trireksani, 2022; Medhioub & Boujelbene, 2024). While these studies provide significant insights into the correlation between voluntary disclosure and tax avoidance, research on IR and tax avoidance remains limited, despite the growing implementation of IR by firms (Donkor et al., 2022).

Hence, this study contributes to the literature in several folds. First, it adds to the scanty literature on IR and CTA (Donkor et al., 2022; Medhioub & Boujelbene, 2024). Second, the study examines the East Africa Community (EAC), a developing region characterized by rampant CTA and a weak legislative and institutional environment (Githaiga, 2025). In fact, it is estimated that EAC partner states – Kenya, Tanzania, Rwanda and Uganda – lost 2.7% of GDP in tax income (Cobham & Janský, 2018). Furthermore, the Kenya Revenue Authority (KRA, 2024a, b) reported that of the 759,164 companies registered in Kenya, only 504,036 of them filed annual returns for the financial year 2021/2022. Of these, only 84,428 firms declared and paid corporate tax. In addition, KRA recovered Ksh 1 billion China Communications Construction Company Ltd, through “missing trader’ tax evasion scheme, where the company transferred incomes through shell companies to accounts in China (KRA, 2024a, b). In Uganda, Crane Auto Ltd was found to have engaged in UGX 20.1 billion through base erosion and profit shifting (Uganda Revenue Authority, 2024). In Tanzania, Tanzania Revenue Authority won a TZS 50 billion shillings tax dispute with African Barrick Gold Plc, on investment income accrued on sale of interest in Nyanzaga Gold Exploration (The Citizen, 2022). In Democratic Republic of Congo (DRC), 90% (approximately $12m) of logging revenues lost to tax avoidance (Global Witness, 2013). As a result, EAC member states are presently enacting various tax reforms, including self-assessment, electronic tax filing and taxpayer education designed to improve tax revenue collection (Opiso et al., 2023). This improved tax collection is vital to finance public expenditures crucial for attaining the sustainable development goals (Rahman, 2023). Third, in contrast to South Africa, which was the inaugural nation to officially embrace IR following the incorporation of the King III Report on Corporate Governance Principles into the Johannesburg Securities Exchange (JSE) listing criteria in March 2010, corporate entities in the EAC continue to embrace IR. However, the institutional environment constrains financial reporting methods via formal mechanisms, including laws and regulations, as well as informal processes like norms and conventions. Consequently, the importance of company disclosure practices in mitigating executive actions like tax avoiding may be less significant in developing regions such as the EAC. Consequently, the impact of company disclosure practices on mitigating executive actions like tax avoidance is less significant in developing areas such as the EAC. Finally, this work further contributes to the research on management motivation in IR. The voluntary nature of IR enables managers to legitimize corporate actions, including the use of voluntary disclosures to alleviate information asymmetry. Thus, IR may facilitate stakeholders, including tax authorities, to more accurately predict a firm’s adherence to its tax obligations.

The remainder of this study is organized as follows. Section 2 reviews the literature and develops the research hypothesis. Section 3 describes the research design. Section 4 presents the results and the discussion. Section 5 concludes the study. Finally, Section 6 highlights the limitations of the study and suggestions for further research.

Firms engage in voluntary disclosures to maintain and restore their trustworthiness with stakeholders (Sciulli & Adhariani, 2023). Social and environmental disclosures typically mirror the beliefs and expectations of the firm’s stakeholders (De Villiers, Cho, Turner, & Scarpa, 2023). According to the legitimacy theory, corporate entities gain acceptability by adhering to societal values and norms (Deegan, 2002). Stakeholders are more inclined to engage with firms that follow their social contract by aligning their behaviors with socially constructed norms, values, beliefs and definitions (Boulhaga, Elbardan, & Elmassri, 2023). Stakeholders will penalize irresponsible firms that fail to adhere to society norms and ethical ideals. Suchman (1995) defined legitimacy as an operational resource that requires a significant degree of managerial control over legitimization processes. Crossley, Elmagrhi, and Ntim (2021) argue that reputable corporations tend to enhance their legitimacy through social and environmental initiatives. Proponents of the legitimacy theory contend that corporate managers use voluntary disclosure, such reporting on social and environmental performance, to address discrepancies between corporate actions and societal expectations (Patten, 2020). CTA is a major cause of public concern and goes against societal norms. Based to the legitimacy theory, companies that use aggressive tax strategies are more inclined to adopt IR. This could be done to address public concerns about tax avoidance or to show that they are fulfilling societal expectations. Several studies have examined how financial and nonfinancial disclosures can reduce agency costs associated with tax avoidance. For instance, Hope, Ma, and Thomas (2013) studied the link between tax avoidance and the disclosure of geographical earnings. The authors found that companies that do not disclose their geographic earnings have lower current effective tax rates (ETRs) compared to those that publish their geographic earnings. Donkor et al. (2022) studied the relationship between IR and CTA among companies listed on the Johannesburg Stock Exchange between the years 2011 and 2017. They found a negative link between IR and CTA.

Khan, Abraham, Alex, Eluyela, and Odianonsen (2022), using a sample of 91 companies from the Nigeria Stock Market and 121 companies from the Pakistan Stock Market for the period from 2011 to 2020, found a positive and significant link between CSR and tax avoidance among Nigerian firms. However, they found no significant link among Pakistan firms. Using panel data of all 30 listed banks on the Dhaka Stock Exchange, Bangladesh, covering the period 2012–2020, Rashid, Begum, Hossain, and Said (2024) found that the higher levels of CSR were negatively linked to tax avoidance. Yoon, Lee, and Cho (2021), using a sample of Korean firms during the period 2011–2017, found a negative relationship between Korean firms’ ESG scores and tax avoidance in terms of book–tax income difference. Utilizing data from China’s A-share listed non-financial enterprises between 2009 and 2021, Jiang, Hu, and Jiang (2024) observed that ESG performance significantly lowers CTA. Boubaker et al. (2022) studied a sample of French listed firms from 2007 to 2013. They found that voluntary disclosure was associated with lower tax avoidance. Jiang et al. (2022) examined the link between compulsory corporate social responsibility (CSR) disclosure and CTA practices among publicly traded Chinese companies. They found that mandatory disclosure of CSR activities increased CTA. Using a sample of firms listed on the Indonesia Stock Exchange from 2011 to 2018, Saragih and Ali (2024) found that the adoption of eXtensible Business Reporting Language (a freely available and global framework for exchanging business information that is used to deliver human-readable financial statements in a machine-readable, structured data format) did not reduce tax avoidance. In addition, Stiglingh, Smit, and Smit (2022) examined the relationship between tax transparency and tax avoidance using a sample of top 100 firms listed on the JSE. They found that more tax transparent firms had higher cash ETR. Going by these empirical studies and the legitimacy theory, this study hypothesizes as follows:

The study population comprised 115 firms listed across four stock/securities exchanges in EAC: Nairobi Securities Exchange (61), Dar es Salaam Stock Exchange (28), Uganda Securities Exchange (17) and Rwanda Securities Exchange (9). The Republic of South Sudan, DRC and Burundi do not have functional stock/securities exchange. The Federal Republic of Somalia is also excluded since it joined EAC in December 2023. An inclusion/exclusion criterion was applied to arrive at the final sample. Cross-listed firms (11) were considered in parent country. Firms that were newly listed (17), suspended from trading (4) and with missing data (14) were excluded. The final sample comprised 69 over the period 2014 to 2022. Hence, this study builds on the same population examined by Githaiga (2025).

Tax avoidance was the dependent variable and was measured using the cash ETR. Cash ETR is the ratio of total tax expense minus deferred tax expense over pretax income (Dyreng, Hanlon, & Maydew, 2019). A low ETR is assumed to be reflective of a low tax expense resulting from tax avoidance (Kovermann & Velte, 2019).

This variable was measured using the International Integrated Reporting framework (IIRF) that was released in 2013 by the International Integrated Reporting Council (IIRC). The IIRF presents a set of seven standards that encompass firms’ present strategies and future projections, governance, risks and opportunities, performance, stakeholder relationships and operational outcomes for the purpose of value generation (IIRC, 2013). Furthermore, the IIRF consists of eight disclosure elements referred to as organizational overview and external environment, governance, business model, risks and opportunities, strategy and resource allocation, performance, outlook and the basis for preparation and presentation (IIRC, 2013). IR was measured using the content items provided by the International IR framework (IIRC, 2013; Cooray, Gunarathne, & Senaratne, 2020; Omran et al., 2021). A disclosure index of 58 items as proposed by Al Amosh and Mansor (2021) was constructed by focusing on the content elements of the IIRC (2013) IR framework – organizational overview and external environment (14 items), governance (8 items), business model (14 items), risks and opportunities (3 items), strategy allocation (5 items), performance (5 items), outlook (6 items) and preparation of presentation (3 items). The disclosure checklist index was adopted from Al Amosh and Mansor (2021), which is in line with IIRF issued by the IIRC. The IR disclosure index is shown in the following:

where xi = “1” if i item is disclosed by the firm in a particular year, “0” otherwise, and n is the total number of potential disclosure items included in the checklist. The maximum score denotes the highest achievable score that a company can receive in a given year, which is 58. IR is interpreted as the ratio of the individual scores to the maximum score. A higher score indicates a higher quality IR.

The study also included additional control variables associated with CTA, as evidenced by prior research investigations.

Firm size: Large firms, due to their complex operations and access to skilled tax experts, are more likely to participate in aggressive tax planning compared to small firms (Lanis & Richardson, 2013). Firm size (FS) is measured as the logarithm of total assets.

Firm age: Firm age (FA) is a key determinant of CTA, as indicated by recent research (Salehi, Tarighi, & Shahri, 2020). Established companies engaged in extensive operations are more prone to encountering considerable risks to their reputations. As a result, these firms strive to reduce reputational risk and implement business practices to decrease the chances of participating in tax avoidance (Zimmerman, 1983). The study measured FA by using the natural logarithm of the number of years since the firm was founded.

Leverage: Prior research has shown that firms with high leverage (LEV) are more likely to engage in aggressive tax planning due to interest and principal payments (Amidu, Coffie, & Acquah, 2019). Hence, this study incorporate leverage and it is measured as the total debt scaled by the total assets.

Firm performance: Profitable firms are assumed to have higher ETRs since they are less financially constrained (Bayar, Huseynov, & Sardarli, 2018). On the other hand, it has been argued that highly profitable firms tend to use more complex financing arrangements, which generate more incentives and opportunities for tax avoidance (Kerr, 2019). Firm performance is measured as the return on assets (ROA) (Mafrolla & D’amico, 2016).

Tangibility: Firms with high capital investments are inclined to allocate more resources toward tax planning strategies, potentially resulting in increased tax avoidance (Huang, Sun, & Zhang, 2017). Tangible assets can be used to generate substantial tax deductions, reducing the ETR (Kerr, 2019). The ratio of property, plant and equipment to total assets is included as a control variable.

Institutional ownership: Institutional ownership (INOW) is considered crucial for corporate governance mechanisms that provide effective supervision of managerial decisions related to tax avoidance (Graham & Tucker, 2006; Ying, Wright, & Huang, 2017). Institutional investors closely monitor a company’s policy on dividends (Dhaliwal, Gleason, & Mills, 2004). They may encourage tax avoidance, leading to increased company profits, but they may also reduce it to a level where the costs outweigh the benefits. This variable is measured as the proportion of shares owned by institutional investors.

Board independence: External directors play a vital role in improving board effectiveness by leveraging their expertise to prevent managerial actions linked to financial reporting, earnings management and tax avoidance (Chytis, Tasios, & Filos, 2020; Armstrong, Blouin, Jagolinzer, & Larcker, 2015; Minnick & Noga, 2010). Board independence is measured as the ratio of outside directors to the total number of directors (Cho, Cho, & Bian, 2024).

The study adopted the following regression model to test the hypothesis:

where ETR is cash effective tax rate, IR is integrated reporting, LEV is leverage, FA is firm age, ROA is return on assets, FS is firm size, TAN is tangibility, INOW is institutional ownership, BIN is board independence. β₀ is constant, β₁ … β₈ are beta coefficients and $εit$ is an error term.

Table 1 displays the descriptive statistics of the research variables from 2013 to 2022. The mean ETR is 0.229 (22.9%), which is lower than the average corporate tax rate of 30.00% in the region. The low ETR could be attributed to legitimate aggressive tax planning practices aimed at maximization of shareholders wealth. This indicates that listed firms in the EAC are involved in tax avoidance. The average IR of 60.6% indicates a high adoption of IR by the selected firms. The mean ROA of 6.9% shows low profitability. In terms of INOW, the average of 67.1% reveals that institutional owners have a significant share of equity in the EAC stock/securities exchanges. The mean leverage of 54.7% suggests that the selected firms use a judicious amount of debt capital. The average asset tangibility indicates that the selected firms hold 19.9% of their total assets in the form of property, plant and equipment. The mean board independence of 66.4% indicates that corporate boards in the region are independent and therefore more effective in oversight. Finally, the mean FA and FS were 3.182 and 10.59, respectively.

This subsection reports the results of the correlation analysis. Table 2 shows that Pearson's pairwise correlation coefficients are less than 0.8, which confirms the absence of multicollinearity. The correlation results further demonstrate that IR, INOW, LEV, tangibility (TAN) and FS are positively correlated with cash ETR. On the other hand, firm performance (ROA) and board independence (BIN) are negatively correlated with ETR. However, FA is negatively correlated with ETR, but the association is not significant.

The study aimed to assess the effect of IR on CTA in EAC’s listed firms. Table 3 shows the regression results for ordinary least squares (OLS), the fixed effect (FE), the random effect (RE) and the system generalized method of moments (SGMM). The hypothesis was tested using the OLS results. The results demonstrate that IR has a positive and significant effect on ETR with a beta coefficient of 0.130 (ρ < 0.05). Therefore, H1 is not supported, and the results align with those of Donkor et al. (2022), who found a negative relationship between IR and CTA practices among firms listed on the Johannesburg Stock Exchange. Davis, Guenther, Krull, and Williams (2016) found a positive relationship between CSR and tax avoidance, suggesting that firms that engage in tax avoidance strategies often provide more comprehensive CSR disclosures. The study’s findings suggest that IR can be utilized to enhance corporate transparency in a firm’s operations and to meet the informational needs of stakeholders, especially concerning tax obligations. Companies may utilize IR to foster a positive view of ethical conduct about their tax obligations. Prior study has indicated that managers utilize company disclosures and their personal judgment in financial reporting to shape impressions, with the intent to influence stakeholder views and decisions (Kanbaty, Hellmann, Ang, & He, 2024). Furthermore, proponents of the legitimacy theory argue that companies disclose more information about their environmental, social and governance (ESG) practices to address community concerns about low tax payments and improve their reputation. The agency theory posits that information asymmetry exists between company executives and stakeholders, including shareholders and tax authorities. Consequently, managers may employ IR to mitigate information asymmetry and enhance corporate transparency on issues such as corporate tax obligations. Regarding the control variables, Table 3 demonstrates that LEV had a negative and statistically significant relationship with ETR, coefficient of 0.071 (ρ < 0.05). The findings are consistent with those of Amidu et al. (2019), who observed a negative link between debt financing and tax avoidance. The findings can be linked to the tax deductibility of interest on debt capital, resulting in a reduction of a firm’s tax liability (Stickney & McGee, 1982; Zeng, 2018).

The results further reveal that FS is positively associated with ETR coefficient 0.379 (ρ < 0.05). This implies that large firms pay more taxes than smaller firms. The findings are in line with the “political cost hypothesis” that asserts that large firms are more subjected to greater government scrutiny and wealth transfers than smaller firms are. This should translate into higher corporate tax burdens for large firms (Hager & Baines, 2020). The results are in agreement with Zimmerman (1983), Ronen and Aharoni (1989) and Kim and Zhang (2016) who claim that large firms may face more political and reputational costs from engaging in tax avoidance. On the contrary, Offenberg (2009) asserts that large firms are characterized by ineffective control systems, which may lead to increased tax avoidance.

The result further revealed that FA was negatively related with ETR, but the relationship was not statistically significant as demonstrated by the coefficient of −0.045 (ρ > 0.05). This implies that young and old firms have equal opportunities of engaging in tax avoidance practices. This can be attributed to managerial motives in tax avoidance. Firm performance had a negative effect on ETR as demonstrated by the negative beta coefficient if −0.228 (ρ < 0.05). Nevertheless, the current findings contradict previous research that suggests firms with higher profits are more inclined to employ complex strategies to manipulate earnings and avoid taxes (Dechow, Sloan, & Sweeney, 1995; Zeng, 2018; Lennox, Lisowsky, & Pittman, 2013). In terms of tangibility, the beta coefficient of −0.140 (ρ < 0.05) indicated a statistically significant and negative association with ETR. The findings align with previous research (Amidu et al., 2019). Consistent with this study’s findings, it is argued that firm with high levels of capital investment tends to have lower tax burdens and are more likely to actively pursue tax avoidance strategies. It has also been noted that capital expenditure proxies for tax planning opportunities from depreciation and amortization of capital assets (Athira & Ramesh, 2023).

The findings further indicated that INOW positively and significantly affected ETR as evidenced by the beta coefficient of 0.452 (ρ < 0.05), supporting findings from Hasan et al. (2024). These findings suggest that tax avoidance reduces with increased institutional investor shareholdings. The results can be explained by institutional owners’ investment horizon. Institutional investors make long-term investments in emerging nations. Furthermore, institutional investors may offer CTA incentives since they prioritize long-term profitability. To prove to institutional investors, they can create good returns; managers often strive for after-tax profitability (Khan, Srinivasan, & Tan, 2017). In support of the findings, Khurana and Moser (2013) noted that institutional investors’ investment horizon may affect CTA. On the contrary, Ferreira and Matos (2008) argue that institutional investors may not closely follow the decisions of their investee companies due to economic ties. The authors further mention that gray organizations like bank trusts and insurance companies are close to firm managers and less likely to be effective in exercising oversight.

Finally, the regression results revealed that board independence (BIN) had a statistically significant positive effect on ETR, as indicated by the beta coefficient of 0.318 (ρ < 0.05). The results are consistent with those of Hasan et al. (2024) among companies listed on the Pakistan Stock Exchange. Based on the findings, corporate boards with a significant number of outside directors are more effective in mitigating unethical and opportunistic managerial behavior associated with tax avoidance.

The study used the OLS regression to test the relationship between IR and tax avoidance. However, three additional panel data estimation methods were used to address the shortcomings of using OLS with panel data. First, OLS estimator tends to be biased and inconsistent if any unobserved firm-specific characteristics are correlated with the dependent variable (Sevestre & Trognon, 1985). To deal with this problem, the study employed the FE regression model to control for unobserved firm-specific characteristics. Second, the study further applied the random-effect model to control for random unobservable effects (Han, Pehlivan, Konat, & Koncak, 2025). Third, the FE and the RE estimator may be biased if the error terms are serially correlated (Nickell, 1981). Furthermore, owing to various circumstances, traditional panel methods for regression analysis, such as the pooled OLS, the RE and the FE, may not be the best appropriate techniques for this study. Unobserved heterogeneity, correlation and endogeneity issues are likely to affect the data employed in this study. A potential option is to utilize the generalized method of moments (GMM), which uses the lagged values of exogenous variables as instruments. Also, the GMM is regarded as an effective model due to its applicability in estimating a range of models, encompassing linear and nonlinear models, dynamic models and models characterized by endogenous variables (Ullah, Anees, Ali, & Khan, 2018). Besides, GMM serves as a consistent estimator, indicating that the estimates will approach the true values as the sample size increases (Blundell & Bond, 1998). GMM also exhibits robustness to minor deviations from the underlying assumptions, rendering it an effective approach for managing unstructured data. Consequently, this study further used the SGMM regression model to control for endogeneity. For the SGMM, the validity of the instruments was tested through Hansen’s J statistic of overidentifying restrictions. The test’s results that are reported in Table 3 confirm that the null hypothesis of the valid of the instruments cannot be rejected. Further, the study applied the Arellano and Bond (1991) AR(2) to test for the second-order serial autocorrelation, and the results confirm the absence of second-order autocorrelation.

Models 2–4 of Table 3 show the additional regression results for the RE model, the FE mode and the SGMM, respectively. The results confirm that IR, leverage (LEV), firm performance (ROA), firm size (FA), tangibility (TAN), board independence (BI) and INOW are significantly related to tax avoidance (ETR), while the signs of these coefficients remained unchanged. The outcomes of the three additional panel data regression techniques align with the OLS results and corroborate the hypothesis testing.

Governments worldwide consistently struggle to collect tax revenue due to the escalating sophistication and complexity of CTA techniques. Similarly, there has been an increased demand for corporate entities to embrace IR as a means to enhance corporate transparency. Hence, this study sought to examine the relationship between IR and CTA among listed firms within the EAC partner states. The study used panel data from a sample of 69 firms over the period between 2013 and 2022. The findings revealed a positive and significant relationship between IR and ETR. Based on these results, it was evident that firms that have embraced IR are less likely to engage in tax avoidance. These empirical results offer more support to the notion that corporate entities may engage in voluntary disclosure practices (such as IR, CSR disclosure, sustainability reporting, carbon emission disclosure among others) as a means to establish their legitimacy. In addition, firms may employ voluntary disclosures to demonstrate corporate transparency and social responsibility on matters related to their tax obligations.

The findings have significant policy implications for regulators and accounting standard setters. Regulators ought to prioritize oversight over enterprises that have not adopted IR, as these organizations demonstrate a heightened tendency for tax avoidance. Additionally, tax authorities and accounting standard setters may find it advantageous to identify instances where corporate disclosures are misleadingly utilized to obscure tax avoidance practices. Policymakers should work together with corporate bodies to cultivate a closer cooperation that includes the sharing of financial and non-financial information. These entail the policy maker providing useful technical and advisory support and training on IR. This can successfully facilitate the reduction of costs involved in the adoption of IR. Using this kind of an approach has the ability to not only ensure that tax compliance is both fair and effective, but it also has the potential to promote solid corporate reporting standards.

This study empirically examines the proposition that firms practicing tax avoidance disclose more information in their annual reports to alleviate public concerns on the adverse social consequences of their tax planning techniques. The findings provide crucial statistical evidence that corporations engaged in IR are less likely to engage in tax avoidance, particularly in developing economies. These findings further offer a robust basis for assessing the validity of the legitimacy theory. According to the theory, when the actions of corporations deviate from the expectations of society, corporate executives use disclosures, such as IR, to mitigate the societal concerns or, more specifically, to demonstrate corporate awareness of the issues faced by the community and other stakeholders. Consequently, IR is seen as an instrument employed to alleviate public apprehensions and showcase a firm’s adherence to society norms (Deegan, Rankin, & Tobin, 2002). Furthermore, Deegan and Rankin (1996) observed that firms intensify their disclosure of positive environmental information during times of heightened public scrutiny, while Brown and Deegan (1998) observed that there was a significant link between higher environmental disclosures in annual reports and increased media attention, which in turn indicated that the public was concerned about the environment. Despite the broad support for the theory in explaining “greenwashing” in voluntary disclosure, this study revealed that corporations engaged in tax avoidance are less likely to employ IR for legitimacy purposes. The study’s findings suggest that voluntary disclosure serves as a monitoring mechanism that reduces the likelihood of insiders engaging in rent extraction through tax avoidance, particularly in developing regions such as the EAC, characterized by weak legal and institutional frameworks.

Therefore, the findings are significant for potential adopters of IR as well as entities that are promoting the wider use of IR. Specifically, the findings highlight the necessity of IR in minimizing negative business activities such as tax avoidance.

The incorporation of tax-related information into IR could be accomplished through the issuance of a standard that is specifically devoted to tax sustainability, as opposed to incorporating taxes into governance or community-related standards. Furthermore, the public could assess a company’s commitment to its tax obligation with the assistance of integrated disclosure of tax methods. In addition, a more granular tax disclosure should make it easier to identify CTA techniques. This may improve tax collection, which will in turn improve the provision of fund public goods and services. In conclusion, the findings of this study offer some empirical evidence that IR is an efficient tool in mitigating unethical corporate actions. As a consequence of this, investors who are interested in ethical businesses could take into consideration organizations who have adopted IR. In all likelihood, these firms have a positive corporate reputation, which could potentially boost their profitability and, eventually, the economic value they provide to their shareholders. While companies may derive advantages from engaging in short-term tax avoidance, it can also have detrimental consequences as it may contravene legal statutes. Hence, shareholders should ensure that their IR disclosure policy exhibits a strong dedication to fulfilling its obligation of paying an equitable portion of firm’s taxes.

This study has several limitations that may make it difficult to generalize the findings. First, the sample was restricted to firms listed in the EAC. The region is classified as developing and is marked by a weak legal and institutional framework. Therefore, the results may not be comparable to other jurisdictions, particularly developed and rising economies. Second, the study only used ETR as a proxy measure of tax avoidance. While the existing empirical literature demonstrates that ETR is widely accepted as a measure of CTA, different measures of tax avoidance, such as long-run ETRs, can provide diverse outcomes. Third, the study solely examined the direct link between IR and ETR. Hence, future research should investigate potential mediating and moderating factors, such as corporate- and firm-specific factors or institutional variables. Fourth, future studies could investigate the factors that motivate IR and identify any barriers that may exist between IR and environmental, social and governance reporting. Fifth, researchers may consider examining the specific facets of IR that are deemed significant in relation to tax avoidance, while also considering the different industry sectors. Sixth, this study uses financial report disclosures to assess IR. Consequently, future research should explore qualitative IR metrics to gain further understanding of the motivations behind nonfinancial disclosures. Seventh, publicly traded companies have a significant advantage in respect to enhanced financing opportunities and reduced financing costs compared to other small and medium-sized organizations (SMEs). This advantage allows companies to more effectively manage the costs linked to tax avoidance. Moreover, publicly traded companies incur higher political costs than SMEs. Hence, this study suggests that future research should encompass SMEs. This will enhance our understanding of the issues and opportunities related to IR and tax compliance among SMEs. Eighth, research could broaden the findings by exploring additional geographic regions and jurisdictions. Finally, additional research could improve literature by exploring the link between CTA and alternative forms of disclosure such as ESG, carbon emission disclosure among others.