The Effect of Aggressive Tax Strategy on Stock Price Synchronicity with Emphasis on the Moderating Role of Media Coverage and Audit Dimensions

Karami Taleghani, Faramarz; Kheradyar, Sina

doi:10.22103/jak.2024.22410.3974

The Effect of Aggressive Tax Strategy on Stock Price Synchronicity with Emphasis on the Moderating Role of Media Coverage and Audit Dimensions

Document Type : Research Paper

Authors

Faramarz Karami Taleghani

Sina Kheradyar

Department of Accounting, Rasht Branch, Islamic Azad University, Rasht, Iran.

10.22103/jak.2024.22410.3974

Abstract

Objective: According to the theory of managerial opportunism, adopting an aggressive tax strategy increases the rent-seeking of opportunistic managers, and they try to reduce the transparency of financial information to hide their rent-seeking. Reducing the transparency of financial information can lead to a decrease in the disclosure of specific and fundamental information about the company in stock prices and, as a result, an increase in stock price synchronicity. On this basis, understanding the impact of adopting an aggressive tax strategy on stock price synchronicity from the perspective of media coverage and audit dimensions as two effective mechanisms for improving the company's information environment seems essential. Therefore, the present study aims to investigate the effect of an aggressive tax strategy on stock price synchronicity by considering media coverage and audit dimensions.
Method: To measure the aggressive tax strategy, four variables of effective tax rate were used based on accounting standards: effective cash tax rate, long-term effective tax rate and book-tax difference. The statistical sample of the research includes 128 companies listed on the Tehran Stock Exchange from 2015 to 2022. The hypothesis of this research was tested using multi-variable regression and the implementation of the panel data.
Results: Findings show that the aggressive tax strategy positively and significantly affects the Stock price synchronicity. Also, media coverage and audit dimensions weaken the relationship between bold tax strategy and stock price synchronicity.
Conclusion: According to the research results, aggressive tax policies create more incentives for opportunistic managers to hide rent-seeking activities, which leads to increased financial reporting opacity, reduced disclosure of company-specific and fundamental information in stock prices, and, ultimately, increased stock price synchronicity. Therefore, the present study provides a new approach to understanding the quality of financial reporting transparency from a tax perspective and provides empirical evidence to support the agency's view regarding the impact of aggressive tax strategy on stock price synchronicity.

Keywords

Aggressive Tax Strategy

Stock Price Synchronicity

Media Coverage

Audit Dimensions

Subjects

Financial Accounting

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