The Impact of Corporate Governance and Operational Risk on the Relationship between Corporate Tax Avoidance and Stock Price Response

Subject Areas : Corporate governance

Bahman Zohrabi ¹ , Roya Darabi ²

1 - Accounting Department, South Tehran Branch, Islamic Azad University, Tehran, Iran.
2 - Department of Accounting, South Tehran Branch, Islamic Azad University, Tehran, Iran.

Received: 2025-01-21 Accepted : 2025-07-18 Published : 2025-11-12

Keywords: Tax, Corporate Governance, Tax Avoidance, Operational Risk,

Abstract :

Objective: The main objective of this study is to investigate the impact of corporate governance and operational risk on tax avoidance and stock price response in the Iranian capital market.

Method: The statistical population of the study was companies listed in the Iranian capital market during the fiscal period 2017 to 2023. The sampling method used in this study was screening, in which companies that did not meet the requirements were eliminated, and finally 129 companies were included in the final sample. The research method used in this study was to collect library information and also use the database of the Stock Exchange Organization, and the data were examined post-event. The regression method used was multivariate, and the data structure used was also in the form of a panel, and the regression assumptions were examined to implement the regression. In order to investigate this issue, two hypotheses were designed, and multivariate regression models based on mixed data and the fixed effects method were used to test the hypotheses.

Findings: The results of testing the research hypotheses using the panel data method showed that corporate governance has a significant and positive effect on the relationship between companies' tax avoidance and stock price response, but operational risk does not have a significant effect on the relationship between companies' tax avoidance and stock price response.

Conclusion: Since tax avoidance benefits shareholders and is positively associated with increasing shareholder returns, there exists a conflict of interest between corporate managers’ objectives and governments’ goals of generating revenue through taxation. In fact, managers may continue engaging in tax avoidance even when corporate governance quality improves, and thus, the quality of corporate governance may not necessarily affect tax avoidance as an efficient strategy for reducing taxes.

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