Impacts of Managerial Ability on Tax Avoidance

Document Type : Research Paper

Authors

Abstract

Management by tax avoidance may follow appropriate reporting that presents the firm with more profit than reality, and to show a good delineation of firm proceeds. However, able managers are less involved in tax avoidance action because of its opportunity cost. The aim of this study is examining the effects of management ability on tax avoidance. A sample of 91 firms accepted in the Tehran Stock Exchange from 1384 to 1392 was selected.
In this study management ability criterion was considered a part of firm efficiency which was not affected by inherent factors, and was calculated by data envelopment analysis method. Also, the average of cash payment in the next three years divided to the average of taxes in the same period was regarded as tax avoidance criterion. Finally, test of hypothesis was carried on by synthetic regression. The result showed that management ability has significant negative relationship with tax avoidance.

Keywords


Alizadeh, A. (2012). To measure the effectiveness of e-commerce model based on data envelopment analysis (DEA), M.A. Thesis, Ferdowsi University of Mashhad, 35-40 [In Persian].##
Ayers, B.C., Jiang, J., Laplante, S.K. (2009).Taxable income as a performance measure. The effects of tax planning and earnings quality. Contemporary Accounting Research, 26(1), 15-54.##
Bashirimanesh, N. (2006). The consequences of the economic and political development of accounting standards. Accountant, 21(176), 71-64 [In Persian].##
Dastgir, M., Khodadadi, V., Rastegar, M. (2010). The relationship between financial and non-financial characteristics of companies with AQ and profit. Journal of Securities Exchange, 10, 55-75 [In Persian].##
Demerjian, P., Lev, B., McVay, S. (2012). Quantifying management ability: A new measure and validity tests. Management Science, 58(7), 1229-1248.##
Demerjian, P., Lev, B., McVay, S., (2013). Managerial ability and earnings quality. The Accounting Review, 88, 463-498.##
Desai, M.A., Dharmapala, D. (2009). Corporate tax avoidance and firm value. The Review of Economics and Statistics, 91, 537-546.##
Dhaliwal, D.S., Huang, S.X., Moser, W., Pereira, R. (2011). Corporate tax avoidance and the level and valuation of firm cash holdings. www.ssrn.com.##
Dyreng, S., Hanlon, M., Maydew, E. (2008). Long-run corporate tax avoidance. The Accounting Review, 83(1), 61-82.##
Francis, B.B., Sun, X., Qiang, W. (2014). Managerial ability and tax avoidance. Working Paper, Available at: www.ssrn.com.##
Froughi, D., Mirzaei, M., Rasaiyan, A. (2012). The impact of tax evasion on future stock price crash risk in companies listed in Tehran Stock Exchange. Journal of Tax Administrations Research, 13, 71-110 [In Persian].##
Graham, J.R. (1996). Debt and the marginal tax rate. Journal of Financial Economics, 41, 41-74.##
Hanlon, M., Heitzman, S. (2010). A review of tax research. Journal of Accounting and Economics, 50(2-3), 127-178.##
Hanlon, M., Slemrod, J., (2009). What does tax aggressiveness signal? Evidence from stock price reactions to news about tax shelter involvement. Journal of Public Economics, 93, 126-141.##
Hashemi, S.A., Mehrabi, M. (2008). Identifying the tax factors affecting the advantage of debts financing companies listed on the Tehran Stock Exchange. Journal of Accounting and Auditing Review, 15(54), 137-154 [In Persian].##
Hashemi, S.A., Saedi, R. (2009). The effect of the specific characteristics of firms on the information content of earnings and operating cash flows in explaining stock returns. Journal of Financial Accounting, 1(4), 108-130[In Persian].##
Hendriksen, E., Van Breda, S., Michael, F. (1992). Accounting Theory, 5th Edition. Homewood. IL. Irwin. First Edition 1965.##
Kim, J.B., Li, Y., Zhang, L. (2010). Corporate tax avoidance and stock price crash risk: Firm-level analysis. Journal of Financial Economics, 100, 639-662.##
Krishnan, G.V., Wang, C. (2015). The relation between managerial ability audit and audit feeds and going concern opinions. A Journal of Practice & Theory, 34(3), 139-160.##
Kenneth, L., Poulsen, A. (1989). Free cash flow and stock holder gains in gohng private transactions. Journal of Finance, 44(3), 771-787.##
Mayberry, M.A., Mcguire, S.T., Omer, T.C. (2013). Smooth taxable income, tax avoidance, and the information content of taxable income. Working Paper, www.ssrn.com.##
Mehrani, S., Seyedi, S.S. (2013) .The impact of revenue tax and conservative accounting on firms tax avoidance. Journal of Accounting Knowledge and Management Accounting, 3(10), 13-23[In Persian].##
Namazi, M., Ebrahimi, S. (2009). The effect of intellectual capital on the current and future financial performance of companies listed on the Tehran Stock Exchange. Journal of Accounting and Auditing Review, 1(4), 4-25 [In Persian].##
Pourhaydari, O., Fadavi, M.H., Amini, M. (2013). The effect of avoiding to pay taxes on the transparency of financial reporting of firms listed in the Tehran Stock Exchange. Journal of Economic Research, 4(52), 69-85[In Persian].##
Pourhaydari, O., Sarvestani, A. (2013). Identifying and explaining the factors affecting tax management. Journal of Accounting Knowledge, 4(12), 89-110 [In Persian].##
Rego, S.O., Wilson, R.J., (2012). Equity risk incentives and corporate tax aggressiveness. Journal of Accounting Research, 50, 775-810.##
Rezaeinejad, F., Dehghan, A., Babadi, M. (2013). The effect of management ability on earnings quality: A case study of Tehran Stock Exchange.1st National Conference of Accounting and Management [In Persian].##
Sajadi, S.H., Arabi, M. (2011).The effect of audit quality on profit management. Journal of Public Accountants, 6(12), 104-108[In Persian].##
Sarvestani, A. (2012). The relationship between the company characteristics and the type of properties and the effective tax rate of companies listed in Tehran Stock Exchange. M.A. Thesis, Shahid Bahonar University, Kerman [In Persian].##
Siegfried, J.J. (1974). Effective average U.S. corporation income tax rates. National Tax Journal, 27, 245-259.##
Wang, X. (2010) Tax avoidance, corporate transparency, and firm value. Working Paper, The University of Texas at Austin.
Watts, R., Zimmerman, J. (1986). Positive Accounting Theory. New Jersey: Prentice Hall, Englewood cliffs.##