Investigating the Effect of Tax Avoidance on Investment Efficiency: Interactive Effect of Ownership Structure

Subject Areas : Financial Accounting

Mehdi Zolfaghari ¹ , Esmaeel Ramazanpoor ²

1 - Department of Accounting, Some-e Sara Branch, Islamic Azad University, Some-e Sara, Iran
2 - Department of Economics and Accounting, University of Guilan, Rasht, Iran

Received: 2024-05-06 Accepted : 2024-08-11 Published : 2024-09-26

Keywords: Tax Avoidance , Investment Efficiency, Ownership Structure, Institutional Ownership , Managerial Ownership,

Abstract :

The purpose of this research is to investigate the impact of tax avoidance on investment efficiency with emphasis on the role of institutional ownership and managerial ownership. Tax avoidance can be used as internal source of financing to enable financially distressed companies to access valuable investments with savings from tax avoidance. For this, a sample of 152 companies was selected from the companies listed in the Tehran Stock Exchange and by collecting data related to the research during the years of 2015 to 2022. The data related to the research variables for a period of 8 years were collected from reliable statistical databases. The hypotheses inspired by the title of the research were estimated according to the Chow test and the Hausman test using related statistical methods. The result of the first hypothesis indicates the existence of a significant and positive relationship between tax avoidance and investment efficiency. Also, the result of the second hypothesis showed that there is a direct and significant relationship between tax avoidance in companies with institutional ownership and investment efficiency. While the result of the third hypothesis showed that there is no significant relationship between tax avoidance in companies with managerial ownership and investment efficiency.

References:

[1] Benlemlih, M., and Bitar, M., Corporate social responsibility and investment efficiency, Journal of Business Ethics, 2018; 148(3): 647-671. Doi: 10.1007/s10551-016-3020-2
[2] Bae, G. S., Choi, S. U., Dhaliwal, D. S., and Lamoreaux, P. T., Auditors and client investment efficiency, The Accounting Review, 2016; 92(2): 19-40. Doi: org/10.2139/ssrn.2754394
[3] Hoi, C. K., Wu, Q., and Zhang, H., Is corporate social responsibility (CSR) associated with tax avoid-ance? Evidence from irresponsible CSR activities, The Accounting Review, 2013; 88(6): 2025–2059. Doi:10.2308/accr-50544
[4] Khodamipour A, Amininia M., An Investigation into the Relationship between Tax Avoidance and Cost of Debt and the Effect of Institutional Ownership on this Relationship, Journal of Tax Research, 2013; 21 (19):135-156, (in Persian). Doi: taxjournal.ir/article-1-198-fa.html
[5] Robinson, J., Sikes S., and Weaver C., Performance measurement of corporate tax departments, The Accounting Review, 2010; 85: 1035–1064. Doi:10.2308/accr.2010.85.3.1035
[6] Hasan, I., Hoi, C. K., Wu, Q., and Zhang, H., Does social capital matter in corporate decisions? Evi-dence from corporate tax avoidance, Journal of Accounting Research, 2017; 55(3): 629-668. Doi:10.1111/1475-679X.12159
[7] Kim, J. B., Li, Y., and Zhang, L., Corporate tax avoidance and stock price crash risk: Firm-level analy-sis, Journal of Financial Economics, 2011; 100(3): 639–662. Doi: org/10.1016/j.jfineco.2010.07.007
[8] Shackelford, D. A. and Shevlin, T., Empirical tax research in accounting, Journal of Accounting and Economics, 2001; 31(1-3): 321-387. Doi: org/10.1016/S0165-4101(01)00022-2
[9] Scholes, M., Wolfson, M., Erikson, M., Maydew, E., and Shevlin, T., Taxes and Business Strategy: A Planning Approach, 2008; 4th ed. Upper Saddle River, NJ: Pearson Prentice Hall. Doi: Taxes-Business-Strategy-Myron-Scholes/dp/0136033156
[10] Hanlon, M., and Heitzman, S., A review of tax research. Journal of Accounting and Economics, 2010; 50 (2 and 3): 127–178. Doi: org/10.1016/j.jacceco.2010.09.002
[11] Hasan, I., Incheol Kim, I. Teng, H. and Wu, Q., The effect of foreign institutional ownership on corporate tax avoidance: International evidence. Journal of International Accounting, Auditing and Taxation, 2022; 46: 1-18. Doi: 10.1016/j.intaccaudtax.2021.100440
[12] Edwards, A., Schwab, C., and Shevlin, T., Financial constraints and cash tax savings. The Accounting Review, 2016; 91(3): 859-881. Doi: org/10.2308/accr-51282
[13] Ricca, L.T., Jucá, M.N and Eli Junior, H., Tax benefit and bankruptcy cost of debt. The Quarterly Re-view of Economics and Finance, 2021; 81: 82-92. Doi: 10.1016/j.qref.2021.05.003
[14] McGuire, S., T. Omer, and J. Wilde., Investment opportunity sets, operating uncertainty, and capital market pressure: Determinants of investments in tax shelters, Journal of the American Taxation Associa-tion, 2014; 36 (1): 1–26. Doi:10.2139/ssrn.1896585
[15] Bradshaw, M. Liao., G. & Ma, Mark., Agency costs and tax planning when the government is a major Shareholder, Journal of Accounting and Economics, 2019; 67 (2): 255–277. Doi: 10.1016/j.jacceco.2018.10.002
[16] Green, D., & Kerr, J., How Do Firms Use Cash Tax Savings: A Cross-Country Analysis, Journal of the American Taxation Association, 2022; 44 (1): 93–121. Doi: org/10.2308/JATA-19-027
[17] Hanlon, M., Maydew, E., and Saavedra, D., The taxman cometh: Does tax uncertainty affect corporate cash holdings? Review of Accounting Studies, 2017; 22(3): 1198-1228. Doi: org/10.2139/ssrn.2292020
[18] Arab, R., Gholamrezapoor, M., & Toraj, E. The Mediating Effect of Information Asymmetry and Agency
Costs on the Relationship between CSR and Investment Efficiency. Advances in Mathematical Finance and Applications, 2020, 5(2), P 149-166. Doi: 10.22034/amfa.2019.1870787.123
[19] Asiri, M. Al-Hadi, G. Taylor, L. Duong., Is Corporate tax avoidance associated with Investment efficiency? North American Journal of Economics & Finance, 2020. Doi: https://doi.org/10.1016/ j.najef.2020.101143
[20] Jensen, M., Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 1986; 76(2): 323–329. Doi: org/10.2139/ssrn.99580
[21] Chen, S., Huang, Y., Li, N., Shevlin, T., How does Quasi-indexer Ownership Affect Corporate Tax Planning? Journal of Accounting and Economics, 2019; 67: 278-296. Doi: org/10.1016/j.jacceco.2018.01.001
[22] Kasper, M and Alm, J., Audits, audit effectiveness, and post-audit tax compliance. Journal of Economic Behavior and Organization, 2022; 195: 87-102. Doi: org/10.1016/j.jebo.2022.01.003
[23] Biddle, G., G. Hilary, and Verdi, R. S., How does financial reporting quality relate to investment efficiency? Journal of Accounting and Economics, 2009; 48 (2–3): 112–131. Doi: org/10.1016/j.jacceco.2009.09.001
[24] Asgari Rashtiani, H., Mohammadi Nodeh, F., Kheradyar, S., & Rezaei, F. The Role of Social Interest Rate Risk Management in the Relationship between Sustainability Performance and Investment Efficien-cy. Advances in Mathematical Finance and Applications, 2020, 5(4), P 549-568. Doi: 10.22034/amfa.2020.67495
[25] Rahmani, A., Zanjirdar, M., Ghiabi, H. Effect of Peer Performance, Future Competitive Performance, and Factors of Correlation with Peer Companies on Manipulation of Abnormal Real Operations. Advances in Mathematical Finance and Applications, 2021, 6(1), P. 57-70. Doi: 10.22034/amfa.2020.1875478.127
[26] Izadikhah, M. Financial Assessment of Banks and Financial Institutes in Stock Exchange by Means of an Enhanced Two stage DEA Model. Advances in Mathematical Finance and Applications, 2021, 6(2), P. 207-232. Doi: 10.22034/amfa.2020.1910507.1491
[27] Crocker, K.J., & J. Slemrod., Corporate tax evasion with agency costs. Journal of Public Economics, 2005; 89:1593–1610. Doi: org/10.1016/j.jpubeco.2004.08.003
[28] M.L. Chang, D.F. Huang, C.C. Ting, H.S. Chang., Gender, political connection, and tax avoidance in China, Theor. Econ. Lett, 2019; 9 (8): 2839–2863. Doi: 10.4236/tel.[phone]
[29] Khurana, I. K., Moser, W. J., & Raman, K. K., Tax Avoidance, Managerial Ability, and Investment Efficiency. Abacus, 2018; 54(4): 547-575. Doi: 10.1111/abac.12142
[30] Khaoula, Ftouhi,. Moez, Dabboussi., The moderating effect of the board of directors on firm value and tax planning: Evidence from European listed firms, Borsa Istanbul Review, 2019;19(4): 331-343. Doi: org/10.1016/j.bir.2019.07.005
[31] Sarraf, F. Ali Akbari, MA. Azimi, A., Tax avoidance and investment efficiency with emphasis on the comparability of financial statements and product market competition, Journal of new research approaches in management and accounting, 2022; 5(18), (in Persian). Doi: majour-nal.ir/index.php/ma/article/view/1048
[32] Madani, M. Amiri,F. Lazemi,S., Investigating the impact of managers’ ability on the relationship be-tween tax avoidance and investment efficiency in companies listed on the Tehran Stock Exchange. Jour-nal of Management and Accounting Research, 2022; 1(2), (in Persian). Doi: jfak.journals.ikiu.ac.ir/article_970.html
[33] Gholami, A. Nezampoor, E., A theoretical study of agency theory in accounting researches, Journal of Accounting Research and Economical Science, 2022; 6(4), (in Persian). Doi: jares.ir/post.aspx?id=790
[34] Hanlon, M. Slemrod,J., What does tax aggressiveness signal? Evidence from stock price reactions to news about tax shelter involvement. Journal of Public Economics, 2010; 93(1–2): 126-141. Doi: org/10.1016/j.jpubeco.2008.09.004
[35] jeiran asia, M., ghayour, A. The Effect of Ownership Structure on Earning Management in Companies Listed on the Tehran Stock Exchange. Journal of Accounting and Management Vision, 2023; 6(80): 1-13. (in Persian). Doi:jamv.ir/article_174603.html?lang=en
[36] Zamani, S., Zanjirdar, M., Lalbar, A. The effect of information disclosure on market reaction with meta-analysis approach. Advances in Mathematical Finance and Applications, 2022, 7(3), P. 629-644. (in Persian) Doi:10.22034/amfa.2021.1937478.1625
[37] Bahri, S. Jahangiri, H., The moderating effect of managerial ownership on the relationship between product market competition based on the Herfindahl-Hirschman index and the cost of equity capital. New Applied Studies in Management, Economics & Accounting، 2023; 6(1), (in Persian). Doi: 10.22034/nasmea.2023.176137
[38] Dashtbani, GH. Gholami, H., Comparison of managerial ownership over investment and the sensitivity of investment cash flows in state-owned companies with private companies. Journal of new research approaches in management and accounting, 2022; 5(18): 1-16, (in Persian). Doi: majour-nal.ir/index.php/ma/article/view/1021
[39] Chen, S. Sun, Z. Tang, S. and Wu, D., government intervention and investment efficiency: evidence from China. Journal of corporate finance, 2011; 17(2): 259 – 271. Doi: org/10.1016/j.jcorpfin.2010.08.004
[40] Bashirimanesh N, Arefmanesh , A., The role of effective variables on the relationship between tax avoidance and investment efficiency. Advances in Mathematical Finance and Applications, 2023; 8(3): 829-847, (in Persian). Doi: 10.22034/AMFA.2023.1968722.180
[41] Taheri, M. Jalili M., Tax Avoidance and its Relationship with Manager Overconfidence and Audit Committee Characteristics. Journal of Tax Research, 2023; 31 (57) :29-50 , (in Persian). Doi: 10.61186/taxjournal.31.57.2
[42] Mahlooji, M., Investment Efficiency & Tax Avoidance Regarding the Auditor Type in Companies Listed In Tehran Stock Exchange. Journal of Financial Analysis, 2022; 6 (1) :17-36, (in Persian). Doi: ijfa.ir/?p=7600
[43] Rahimi,A. Forueghi, A., Examining the impact of tax avoidance on investment efficiency s. Journal of Accounting Knowledge, 2020; 2 (11) :239-264 , (in Persian). Doi: 10.22103/jak.2020.14368.3027
[44] Nekounam , J. , Zanjirdar, M., Davoodi Nasr,M. , Study of relationship between ownership structure liquidity of stocks of companies accepted in Tehran Stock Exchange, Indian Journal of Science and Technology,2012;5(6): 2840-2845