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

Objective: In recent years, the results of some researches show that the agency problem is an important determining factor for aggressive tax planning. Although the adoption of a aggressive tax strategy through the transfer of wealth from the government to shareholders helps to preserve the company's cash and is viewed as a value maximization strategy, it can have consequences such as reducing stock price awareness; In this sense, instead of following the specific information of the companies, the stock price follows the market index, which reflects the general and general information. This issue is important because in this situation, the company's stock price is not a reliable criterion for investors to choose the appropriate investment option, and the capital market cannot function effectively, and as a result, resources will not be directed to better investments. Therefore, considering the importance of how to allocate resources due to the existence of the fundamental and inevitable phenomenon of lack and limitation of resources in the economy, it seems that dealing with influential factors such as the aggressive tax strategy on the stock price synchronicity in terms of its role in directing resources, is necessary and important.

In fact, examining the influencing factors, including the aggressive tax strategy on the stock price synchronicity can be considered important from several perspectives. First, First, the possible impact of the stock price synchronicity on the stock market. In this regard, Tareq Mahmud (2009) states that the high synchronicity of the stock price may move the value of the stock away from its fundamental value; Because with the occurrence of synchronicity, investors will buy and sell according to the collective trend of the market, and stock evaluation becomes less necessary, and this may affect the stock market. The second is the effect of synchronicity on stock liquidity. In this regard, Davallou (2014) state that due to lack of access to final information, investors prefer to buy stocks whose price fluctuations coincide with the market fluctuations, because such stocks will have the same systematic risk as the market, and this will make stocks more liquid. Third, the role of synchronicity stock price in capital asset pricing. Because, a major factor in capital asset pricing is systematic risk (as defined by the covariance between stock returns and market returns). The greater the synchronicity of the stock price in the market, that is, the more stock price changes are aligned with the market return changes, and as a result, it will have a higher systematic risk. Therefore, taking into account the mentioned cases as an answer to why the importance and necessity of Hadaz's research, an effort was made to provide evidence from the perspective of agency theory for the effect of the aggressive tax strategy on the synchronicity of stock prices and the understanding of the quality of financial reporting transparency from a tax point of view.



Methods: 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 Tehran Stock Exchange as well as the OTC of Iran during the years 2015 to 2022. The hypothesis of this research were tested by using multi-variable regression and implementing Panel Data technique.



Results: Findings show that the aggressive tax strategy has a Positive and significant effect on the Stock price synchronicity. Also, media coverage and audit dimensions weaken the positive effect of aggressive tax strategy and stock price synchronicity.



Conclusion: Based on the results of the research and according to managerial opportunism theory, aggressive tax policies create more incentive for opportunistic managers to conceal rent-seeking activities, resulting in more financial reporting opacity, reduced disclosure of company-specific information, and ultimately increased Stock Price Synchronicity. Also, the joint effects related to media coverage (including improving corporate governance and improving information transparency, reducing information asymmetry and direct and indirect costs of reckless tax policies) in addition to reducing managers' opportunistic behaviors, facilitate the combination of company-specific information. It helps in the stock price and reduces the stock price synchronicity.

In addition, the higher the level of audit dimensions, the more limited the aggressive tax behavior of managers, and it can be expected that in addition to improving the transparency of financial information in companies, this will reduce the Synchronicity of stock prices. In other words, audit dimensions, in addition to reducing the agency problems and the information opacity of companies, increase the possibility of reflecting the specific information of the company along with more details and quality in the financial reports. Therefore, the higher the quality and accuracy of the audit dimensions, the more the reflection of the company's specific information in the stock price will increase, and as a result, the stock price will decrease Synchronicity. Therefore, it can be said that the current research provides a new approach to understand the quality of financial reporting transparency from a tax perspective and provides empirical evidence to support the agent's point of view regarding the effect of the aggressive tax strategy on stock price synchronicity.