The role of effective variables on the relationship between tax avoidance and investment efficiency

Subject Areas : Financial Accounting

Nazanin  Bashirimanesh ¹ (Department of Accounting, Faculty of Economic, Management & Accounting, Payame Noor University, Tehran, Iran)
Zohreh  Arefmanesh ² (Department of Accounting, Faculty of Economic, Management & Accounting , Yazd University , Yazd, Iran)

Received: 2022-10-04 Accepted : 2023-01-01 Published : 2023-07-01

Keywords: Tax Avoidance, Readability of Financial Statements, investment efficiency comparability, information environment, competitive power,

Abstract :

The present study explained the effective components' role in the relationship between investment efficiency and tax avoidance. The study's statistical population is the firms listed on the Tehran Stock Exchange. Using the systematic elimination sampling method, 128 companies were selected as the research sample in the 8 years between 2014 and 2021. Data for measuring the variables were collected from the Codal website and the companies' financial statements; preliminary calculations were made in Excel; then, the research hypotheses were analysed and tested using a multivariate regression model with panel data in Stata and Eviwes software. The results show that tax avoidance has a negative effect on investment efficiency. Also, the comparability and readability of financial statements have an inverse effect on the relationship between tax avoidance and investment efficiency. It can be concluded that the comparability and readability of financial statements weaken the inverse relationship between tax avoidance and investment efficiency. Other findings showed that the company's information environment has a direct and significant effect on the relationship between tax avoidance and investment efficiency, and competitive power does not significantly affect the relationship between tax avoidance and investment efficiency.

References:

• Ajina A., Danielle S., Lakhal F. Corporate Disclosures, Information Asymmetry and Stock-Market Liquidity in France. The Journal of Applied Business Research,2016, 31, P. 223-238-. Jensen M.C. DOI https://doi.org/10.19030/jabr.v31i4.9297

 

• Amini, P., alizadeh, A., rajabi, M. To Investigate the Influence of Independent Board Members on the Relationship between Tax Avoidance and the Risk of Falling Stock Prices. Journal of Securities Exchange, 2015, 8(30),P 53-81. (in Persian)

 

• 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.2019.1870787.1238

 

• 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 Efficiency. Advances in Mathematical Finance and Applications,2020, 5(4), P 549-568. doi: 10.22034/amfa.2020.674951

 

• Asiri, M., Al-Hadi, A, Taylor, G., Duong, L. Is Corporate tax avoidance associated with Investment efficiency? Journal of Economics & Finance,2020, ECOFIN 101143, P 1-45.

 

• Bagheri Azghandi, A., Hesarzadeh, R., & Abbaszadeh, M. R. Readability of Financial Statements and the Sensitivity of Investors to Use of Accounting Information. ـJournal of Financial Management Perspective, 2018, 8(23), P 87-103. (in Persian)

 

• Bahri sales, J. Behnamoon, Y and Maddadi Zadeh, E. Board of Directors’ Characteristics and Tax Aggressiveness. Management Accounting, 2014, 7(3). P 53-67. (in Persian)

 

• Bailing, J., Rui, J. The impact of tax avoidance on enterprise investment efficiency. Journal of Discrete Mathematical Sciences and Cryptography, 2018, 21(6), P 1293-1298. ‏org/10.1080/09720529.2018.1526404

 

• Barth, M. E., Landsman, W. R., Lang, M. H. & Williams, C. D. Effects on Comparability and Capital Market Benefits of voluntary Adoption of IFRS by US Firms: Insights from Voluntary Adoption of IFRS by Non-US Firms. Working Paper, Available at http://www.ssrn.com, 2013

 

• Bekhradi Nasab V. The impact of tax avoidance on labor investment considering the moderating role of corporate management and leadership ability: a new approach in measuring tax avoidance at the economic level. Economic magazine, 20(9-10), P 95-136.

 

• Bhabra, G.S., Kaur, P., Seoungpil, A. Corporate governance and the sensitivity of investments to cash flows. Accounting & Finance, 2018, 58(2), P 367-396. ‏org/10.1111/acfi.12221

 

• Blanco, B., and Dhole, S. Financial Statement Comparability, Readability and Accounting Fraud. AFAANZ Conference, Working Paper, https://www.afaanz.org/openconf/2017/mo dules/request.php?module=oc_program& action=summary.php&id=4 , 2017. org/10.1111/jbfa.12652

 

• Boubaker, S., Dang, V. A., & Sassi, S. Competitive pressure and firm investment efficiency: Evidence from corporate employment decisions.European Financial Management, 2021, 28(1), P 113-161. Doi.org/10.1111/eufm.12335

 

• Cai, H & Lio, Q. Competition and Corporate Tax Avoidance: Evidence. 2009

 

• Cai, J., Y. Liu, Y. Qian, & M. Yu. Information Asymmetry and Corporate Governance; available at: http://ssrn.com. 2015

 

• Chen, C. J., Huang, J. W. & Hsiao, Y. C. Knowledge Management and Innovativeness, the Role of Organizational Climate and Structure. Manpower, 2014, 8, P. 848-870.

 

• De Franco, G., Kothari, S. P., & Verdi, R. The benefits of financial statement comparability. Journal of Accounting Research, 2011, 49(4), P 895-931. Doi.org/10.1111/j.1475-679X.2011.00415.x

 

• Desai, M., Dyck, I., Zingales, L.“Theft and taxes” Journal of Financial Economics, 2007, 84: P 591–623.

 

• Elaoud, A., & Jarboui, A. Investment Efficiency, Tax Avoidance, and External Audit: Evidence of European Firms. Journal of Taxation of Investments, 2021, 39(1).

 

• Engelberg, J., Ozoguz, A., & Wang, S. Know Thy Neighbor: Industry Clusters, Information Spillovers and Market Efficiency. Journal of Financial and Quantitative Analysis, 2017, 41(6), P 51-83. DOI: Doi.org/10.1017/S0022109018000261

 

• Fakhari, H., & Rezaei Pitenoei, Y. Impact of Audit committee on the Firms Information Environment. Management Accounting, 2018, 11(36), P 63-79. (in Persian)

 

• Fatahi, H., & Khajevand, M. age, corporate governance, and capital structure choices in firms admitted to Tehran Stock Exchange . Journal of Accounting and Management Vision, 2018, 1(4), P 72-85. (in Persian)

 

• Fazlolahi,S; Maleki Tavana, M. content analysis methodology with an emphasis on readability techniques and determining the content of texts. Research, 2009, 2(1), P 71-94.

 

• Financial Accounting Standards Board (FASB). Statement of Financial Accounting Concepts
  8: Conceptual Framework for Financial Reporting, 2010.

 

• Gallemore, J. , Labro, E. The importance of the internal information environment for tax avoidance, Journal of Accounting and Economics, 2015, 60(1) , P 149–167. DOI: 10.1016/j.jacceco.2014.09.005

 

• Garsia Lara, J. M., Garsia Osma, B. and Penalva, F. Accounting conservatism and firm investment efficiency.http://papers.ssrn governance and managerial preferences. Journal of Political Economy, 2010, 111, P 1043-1075.

 

• Givoly, D. and Hayn, C. “The Changing Time-Series Properties of Earnings, Cash Flows and Accruals: has Financial Reporting become more Conservative?” Journal of Accounting and Economics, 2000, 29 (3): P 287-320. Doi.org/10.1016/S0165-4101(00)00024-0

 

• Graham, J., Tucker, A. “Tax shelters and corporate debt policy” Journal of Financial Economics, 2006, 81: P 563–594. Doi.org/10.1016/j.jfineco.2005.09.002

 

• Hanlon, M., and S. Heitzman. “A review of tax research” Journal of Accounting and Economics, 2010, 50(2- 3): P 127–178. Doi.org/10.1016/j.jacceco.2010.09.002

 

• Hasan MM. Managerial ability, annual report readability and disclosure tone; 2017 [cited 7 February 2019]. Available from: Https://ssrn.com/.

 

• Irvine, P., Pontiff, J. Idiosyncratic return volatility, cash flows, and product market competition. Review of Financial Studies, 2009, 22, P 1149–1177

 

• Jensen, M. C. and Meckling,W. H. Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure. 1976, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=94043. [online] 12 Oct

 

• Jingyu, W., & Hongliang, Z. An Empirical Research on the Relationship between Product Market Competition and Investment Efficiency.Journal of Finance and Economics, 2018, 45(10), P 125-137. DOI:10.16538/j.cnki.jfe.2019.10.010

 

• Karmi, G; Firouznia, A; Kalhornia, H. importance of internal information environment quality in tax avoidance. Financial Accounting and Auditing Research,2020, 12(45), P 47-80. (in Persian)

 

• Kaufmann, Daniel. and Bellver, Ana. “Transparencing Transparency: Initial Empirics and Policy Applications”, Munich Personal RePEc Archive, 2005, Online at http://mpra.ub.unimuenchen.de/8188/

 

• Khani masoum abadi, Z., & Rajabdorri, H. The Relationship between the Unreadability of Financial Reports and Tax Aggressiveness via Simultaneous Equation System. Journal of Financial Accounting Research, 2019, 11(1), P 41-54. (in Persian)

 

• Khodamipour, A., Rahimi, A., & Forughi, A. Investigating the Effect of Managerial Ability on Tax Avoidance and Investment Efficiency Relationship. Financial Management Strategy, 2020, 8(4), P 111-134.

 

• Kim, J-B, Liu, X., Zheng, L. The impact of mandatory IFRS adoption on audit fees: Theory and evidence, The Accounting Review, 2013, (6)87, P 2094–2061.

 

• Laksmana, I., & Yang, Y.W. Product market competition and earnings management to meet earnings targets. American Accounting Association, 2010. DOI: 10.1016/j.adiac.2014.09.003

 

• Lambert, R., C. Leuz, and Verrecchia, R. Information asymmetry, information precision, and the cost of capital. Review of Finance (forthcoming), 2012. Doi.org/10.1093/rof/rfr014

 

• Li, F. Annual Report Readability, Current Earnings, and Earnings Persistence. Journal of Accounting and Economics, 2008, 45(2), P. 221-247.

 

• Lo, K., Ramos, F., and Rogo, R. Earnings Management and Annual Report Readability. Journal of Accounting and Economics, 2017, 63(1), P 1-25. Doi.org/10.1016/j.jacceco.2016.09.002

 

• Mehrabanpour, M., Jandaghi Ghomi, M., & Rajabbeyki, M. Social Capital and Audit Fees. Accounting and Auditing Review, 2018, 25(2), P 269-288. (in Persian)

 

• Mokhtari, H. Investigating the Relationship Between Bankruptcy and Avoidance of Taxes with Emphasis on Agent Costs. Journal of Accounting and Management Vision, 2019, 2(13), P 135-149. (in Persian)

 

• Modras, A; Hesarzadeh, R. Financial reporting quality and investment efficiency. Stock Exchange Quarterly, 2008, 1(2), P 116-85. (in Persian)

 

• Nikkar, J. The Impact of Product Market Competition on Investment Efficiency in Firms Listed on Tehran Stock Exchange. Accounting and Auditing Studies, 2019, 8(29), P 71-88. (in Persian)

 

• Novemsky, N., Dhar, R. Schwarz, N. & Simonson. I. Preference fluency in choice. Journal of Marketing Research, 2007, 44(3), P 347-356. Doi.org/10.1509/jmkr.44.3.3

 

• Parsa, B., & Sarraf, F. Financial Statement Comparability and the Expected Crash Risk of Stock Prices. Advances in Mathematical Finance and Applications, 2018, 3(3), P 77-93. Doi: 10.22034/amfa.2018.544951

 

• Peress, J. Product market competition, insider trading and stock market efficiency. Journal of Finance, 2010, 65, P 1-43. Doi:10.1111/j.1540-6261.2009.01522.x

 

• Pour-heidari, O., Fadavi, M. H., & Amini-nia, M. An Investigation on the Effect of Tax Avoidance on the Transparency of Financial Reporting Firms Listed in Tehran Stock Exchange. Economics Research, 2014, 14(52), P 69-85. (in Persian)

 

• Rahimi, A., Forughi, A. Investigating the Impact of Tax Avoidance on Investment Efficiency. Journal of Accounting Knowledge, 2020, 11(2), P 239-264. (in Persian)

 

• Rennekamp, K. Processing fluency and investors’ reactions to disclosure readability. Journal of Accounting Research, 2012, 50(5), P 1319-1354. Doi:10.1111/j.1475-679X.2012.00460.x

 

• Rezaei, G., Taghizadeh, R., Sadeghzadeh Maharlui, M., Zeraatgari, R. The effects of labor investment inefficiency on corporate tax avoidance activities. Financial Accounting Knowledge, 2022, 8(4), P 109-133. (in Persian)

 

• Richardson, S. Over-investment of free cash flow. Review of Accounting Studies, 2006, 11: P 159-188. Doi:10.1007/s11142-006-9012-1

 

• safari gerayli, M., & Rezaei Pitenoei, Y. Moderating Effect of Information Environment on the Relation between Accounting Comparability and Tax Avoidance. Empirical Research in Accounting, 2020, 10(4), P 83-111.

 

• Siggel E., Cockburn,J. and M.Culibaly. "Measuring Competitiveness and its sources: A Case of Mali’s Manufacturing Sector", Canadian Journal of Development studies. 1999, 3.

 

• Suk, I., Zhao, Y. Does Financial Statement Comparability Deter Aggressive Tax Avoidance? Available at SSRN: https://ssrn. com/abstract=3065250, 2017.

 

• Taghizade Khaneghah, V and BadAvar Nahandi, Y. The Relationship Between Investment Efficiency and Stock Price Crash Risk with Emphasis on Information Asymmetry. Fiscal and Economic Policies, 2018, 6 (21) : P 33-56. (in Persian)

 

• Tehrani, R; Nourbakhsh, A. Investment Management, Tehran: Publishing Nashr, 2016. (in Persian)

 

• Watts Ross & Zimmerman Jerold. Positive Accounting Theory, prentice-Hall, Englewood Cliffs, New Jersy, 1986.

 

• Weick, K. E. The Social Psychology of Organizing (first edition), Addison-Wesley Pub, 1969.

 

• Widuri, R., Naomi, V., Bumulo, L. C., & Wijaya, J. B. (2020, December). Tax Avoidance and Investment Efficiency: Can Competition in Product Markets Mediate? In 5th International Conference on Tourism, Economics, Accounting, Management and Social Science (TEAMS 2020) (pp. 426-432). Atlantis Press.
  Doi:2991/aebmr.k.201212.060

 

• Yousofvand, D., Mohamadi, M., & Youseefvand, Z. Investigating the Effects of Financial Reporting Readability on Tax Evasion and accrual quality. Accounting and Auditing Studies, 2021, 10(39), P 111-126. (in Persian)

 

• Poordavoodi, A., Reza, M., Haj, H., Rahmani, A. M., Izadikhah, M., Toward a More Accurate Web Service Selection Using Modified Interval DEA Models with Undesirable Outputs. CMES-Computer Modeling in Engineering & Sciences, 2020, 123(2), P. 525–570. Doi: 10.32604/cmes.2020.08854

 

• Azadi, M.,Izadikhah, M., Ramezani, F., Hussain, F.K., A mixed ideal and anti-ideal DEA model: an application to evaluate cloud service providers, IMA Journal of Management Mathematics, 2000, 31(20), P. 233–256, Doi: 10.1093/imaman/dpz012

 

• 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

 

• 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. Doi: 10.22034/amfa.2021.1937478.1625

 

• Zanjirdar, M., Overview of Portfolio Optimization Models. Advances in Mathematical Finance and Applications, 2020. 5(4), P.419-435. Doi: 10.22034/amfa.2020.674941.

 

• Zanjirdar, M., Kasbi, P., Madahi, Z., Investigating the effect of adjusted DuPont ratio and its components
  on investor & quot; s decisions in short and long term, Management Science Letters, 2014, 4(3), P.591-596.
  Doi: 10.5267/j.msl.2014.1.003

 

• 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.2020.1875478.1272