Influence of Taxation Policies on Corporate Financial Performance: The Mediating Role of Tax Planning Effectiveness

Abstract

This study aims to analyze the effect of tax policy on the financial performance of companies and analyse the effect of tax planning effectiveness as a mediator among companies in Malaysia. While previous research has shown that the importance of taxation policies in influencing corporate behaviour and financial outcomes, there is little empirical evidence on the mechanism that links these policies to better financial performance. The study is based on Agency Theory, Institutional Theory, and Resource-Based View, which suggests the effectiveness of tax planning as a strategic capability to enable firms to transform favourable tax planning policies into better financial performance. The research design adopted was a quantitative approach that involved a cross section survey of the finance directors, CFOs, tax managers, financial controllers and senior accountants of Malaysian companies. SmartPLS 4 was used to analyse the 312 valid responses using Partial Least Squares Structural Equation Modelling (PLS-SEM). The results indicate that taxation policies significantly affect the tax planning effectiveness and financial performance of the firm. The effectiveness of tax planning is also strongly positively related to corporate financial performance. Additionally, mediation analysis reveals that the mediation effect of tax planning effectiveness partially exists in the taxation policies and corporate financial performance relationship; the results show that corporate financial performance is positively affected by taxation policies both directly and indirectly through tax planning effectiveness. The model is able to provide satisfactory explanatory and predictive power, and hence the proposed conceptual framework is robust. The study makes a significant contribution to the taxation and corporate finance literature by providing an insight into the literature beyond the direct implications of taxation policies and by revealing the effectiveness of tax planning as a key strategic mechanism that ties fiscal policy and firm performance. The results also have implications for policy makers in their efforts to create transparent and investment-friendly tax regimes and for corporate managers who want to improve tax planning tools to improve their organisations' competitiveness and long-term financial sustainability.

 Received: 2026-07-08 | Revised: 2026-09-28 | Accepted: 2026-09-29 | Published: 2026-09-30

Declarations

Ethics and Guidelines: The study was conducted in accordance with the Declaration of Helsinki. The ethical approval specifically covers the research procedures and data collection activities conducted for this study.

Consent to participate: Written informed consent was obtained from all participants prior to data collection. Consent was obtained using a standardized written form, signed by each participant before participation in the survey.

Consent to publish: The authors have provided consent to publish.

Competing interests: The authors declare no competing interests.

Data availability statement: Data will be made available on reasonable request from the corresponding author.

Funding: This research received no external funding.

Clinical Trial Number: Not Applicable.

Declaration of using generative AI: During the preparation of this work the author(s) used ChatGPT in order to correct the grammatical errors. After using this tool/service, the author(s) reviewed and edited the content as needed and take full responsibility for the content of the published article.

Author Contributions: M.A.H.: Conceptualization, methodology, writing—original draft preparation, writing—review and editing. All authors have read and agreed to the published version of the manuscript.