IDEAS home Printed from https://ideas.repec.org/a/spr/eurasi/v8y2018i3d10.1007_s40821-017-0082-8.html
   My bibliography  Save this article

The association between competition power in markets and tax avoidance: evidence from Tehran stock exchange

Author

Listed:
  • Behnam Karamshahi

    (Shahid Bahonar University of Kerman)

  • Zeinab Azami

    (Shahid Bahonar University of Kerman)

  • Tabandeh Salehi

    (Shahid Bahonar University of Kerman)

Abstract

The current research aimed at studying the association between the power of competition in markets and tax avoidance in the companies complied with Tehran stock exchange. To evaluate competition power in the markets, 2 variables are used, namely, Herfindahl-Hirschman Index (HHI) and entrance obstacles. The dependent variables in this paper were effective tax rate (ETR) and adjusted non-taxable income. The research sample included 72 companies listed on Tehran Stock Exchange during 2006–2015. To assess the research hypotheses, a multi-variable regression was utilized. The research findings revealed a negative relationship between HHI and the ratio of entrance obstacles on the one hand and ETR on the other hand. Thus, the higher the power of competition in a company was, the more the tax avoidance was found. Also, a significant association was observed between HHI and the adjusted non-taxable income. Finally, no significant relationship was seen between the entrance obstacles and adjusted non-taxable incomes.

Suggested Citation

  • Behnam Karamshahi & Zeinab Azami & Tabandeh Salehi, 2018. "The association between competition power in markets and tax avoidance: evidence from Tehran stock exchange," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 8(3), pages 323-339, September.
    • Handle: RePEc:spr:eurasi:v:8:y:2018:i:3:d:10.1007_s40821-017-0082-8
    DOI: 10.1007/s40821-017-0082-8
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s40821-017-0082-8
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s40821-017-0082-8?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Chen, Shuping & Chen, Xia & Cheng, Qiang & Shevlin, Terry, 2010. "Are family firms more tax aggressive than non-family firms?," Journal of Financial Economics, Elsevier, vol. 95(1), pages 41-61, January.
    2. Akdoğu, Evrim & MacKay, Peter, 2012. "Product markets and corporate investment: Theory and evidence," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 439-453.
    3. Shackelford, Douglas A. & Shevlin, Terry, 2001. "Empirical tax research in accounting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 321-387, September.
    4. Mihir A Desai & Dhammika Dharmapala, 2009. "Corporate Tax Avoidance and Firm Value," The Review of Economics and Statistics, MIT Press, vol. 91(3), pages 537-546, August.
    5. Kim, Jeong-Bon & Li, Yinghua & Zhang, Liandong, 2011. "Corporate tax avoidance and stock price crash risk: Firm-level analysis," Journal of Financial Economics, Elsevier, vol. 100(3), pages 639-662, June.
    6. Roychowdhury, Sugata, 2006. "Earnings management through real activities manipulation," Journal of Accounting and Economics, Elsevier, vol. 42(3), pages 335-370, December.
    7. Sonja Olhoft Rego, 2003. "Tax†Avoidance Activities of U.S. Multinational Corporations," Contemporary Accounting Research, John Wiley & Sons, vol. 20(4), pages 805-833, December.
    8. Madhavan, Ananth & Richardson, Matthew & Roomans, Mark, 1997. "Why Do Security Prices Change? A Transaction-Level Analysis of NYSE Stocks," The Review of Financial Studies, Society for Financial Studies, vol. 10(4), pages 1035-1064.
    9. Salamon, Lester M. & Siegfried, John J., 1977. "Economic Power and Political Influence: The Impact of Industry Structure on Public Policy," American Political Science Review, Cambridge University Press, vol. 71(3), pages 1026-1043, September.
    10. Hanlon, Michelle & Slemrod, Joel, 2009. "What does tax aggressiveness signal? Evidence from stock price reactions to news about tax shelter involvement," Journal of Public Economics, Elsevier, vol. 93(1-2), pages 126-141, February.
    11. Peter MacKay & Gordon M. Phillips, 2005. "How Does Industry Affect Firm Financial Structure?," The Review of Financial Studies, Society for Financial Studies, vol. 18(4), pages 1433-1466.
    12. Chyz, James A. & Ching Leung, Winnie Siu & Zhen Li, Oliver & Meng Rui, Oliver, 2013. "Labor unions and tax aggressiveness," Journal of Financial Economics, Elsevier, vol. 108(3), pages 675-698.
    13. Francis, Jennifer & LaFond, Ryan & Olsson, Per & Schipper, Katherine, 2005. "The market pricing of accruals quality," Journal of Accounting and Economics, Elsevier, vol. 39(2), pages 295-327, June.
    14. Joel Peress, 2010. "Product Market Competition, Insider Trading, and Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 65(1), pages 1-43, February.
    15. Mafrolla, Elisabetta & D’Amico, Eugenio, 2016. "Tax aggressiveness in family firms and the non-linear entrenchment effect," Journal of Family Business Strategy, Elsevier, vol. 7(3), pages 178-184.
    16. Sonja Olhoft Rego & Ryan Wilson, 2012. "Equity Risk Incentives and Corporate Tax Aggressiveness," Journal of Accounting Research, Wiley Blackwell, vol. 50(3), pages 775-810, June.
    17. Atwood, T.J. & Drake, Michael S. & Myers, Linda A., 2010. "Book-tax conformity, earnings persistence and the association between earnings and future cash flows," Journal of Accounting and Economics, Elsevier, vol. 50(1), pages 111-125, May.
    18. Gu, Zhaoyang & Wu, Joanna Shuang, 2003. "Earnings skewness and analyst forecast bias," Journal of Accounting and Economics, Elsevier, vol. 35(1), pages 5-29, April.
    19. Kewei Hou & David T. Robinson, 2006. "Industry Concentration and Average Stock Returns," Journal of Finance, American Finance Association, vol. 61(4), pages 1927-1956, August.
    20. Graham, John R. & Tucker, Alan L., 2006. "Tax shelters and corporate debt policy," Journal of Financial Economics, Elsevier, vol. 81(3), pages 563-594, September.
    21. Hanlon, Michelle & Heitzman, Shane, 2010. "A review of tax research," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 127-178, December.
    22. Hanlon, Michelle & Maydew, Edward L. & Shevlin, Terry, 2008. "An unintended consequence of book-tax conformity: A loss of earnings informativeness," Journal of Accounting and Economics, Elsevier, vol. 46(2-3), pages 294-311, December.
    23. Desai, Mihir A. & Dharmapala, Dhammika, 2006. "Corporate tax avoidance and high-powered incentives," Journal of Financial Economics, Elsevier, vol. 79(1), pages 145-179, January.
    24. Rajgopal, Shivaram & Shevlin, Terry, 2002. "Empirical evidence on the relation between stock option compensation and risk taking," Journal of Accounting and Economics, Elsevier, vol. 33(2), pages 145-171, June.
    25. Cohen, Daniel A. & Zarowin, Paul, 2010. "Accrual-based and real earnings management activities around seasoned equity offerings," Journal of Accounting and Economics, Elsevier, vol. 50(1), pages 2-19, May.
    26. Roman Lanis & Grant Richardson, 2012. "Corporate social responsibility and tax aggressiveness: a test of legitimacy theory," Accounting, Auditing & Accountability Journal, Emerald Group Publishing, vol. 26(1), pages 75-100, December.
    27. Coles, Jeffrey L. & Daniel, Naveen D. & Naveen, Lalitha, 2006. "Managerial incentives and risk-taking," Journal of Financial Economics, Elsevier, vol. 79(2), pages 431-468, February.
    28. Gerard Hoberg & Gordon Phillips & Nagpurnanand Prabhala, 2014. "Product Market Threats, Payouts, and Financial Flexibility," Journal of Finance, American Finance Association, vol. 69(1), pages 293-324, February.
    29. Clarkson, Peter M. & Li, Yue & Richardson, Gordon D. & Vasvari, Florin P., 2008. "Revisiting the relation between environmental performance and environmental disclosure: An empirical analysis," Accounting, Organizations and Society, Elsevier, vol. 33(4-5), pages 303-327.
    30. Leventis, Stergios & Weetman, Pauline & Caramanis, Constantinos, 2011. "Agency costs and product market competition: The case of audit pricing in Greece," The British Accounting Review, Elsevier, vol. 43(2), pages 112-119.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yoojin Shin & Jung-Mi Park, 2023. "The Effect of a Company’s Sustainable Competitive Advantage on Their Tax Avoidance Strategy—Focusing on Market Competition in Korea," Sustainability, MDPI, vol. 15(10), pages 1-15, May.
    2. Muhammad Arif Khan & Meng Bin & Chunlin Wang & Hazrat Bilal & Arshad Ali Khan & Irfan Ullah & Amjad Iqbal & Mohib Ur Rahman, 2023. "Impact of R&D on Firm Performance: Do Ownership Structure and Product Market Competition Matter?," SAGE Open, , vol. 13(4), pages 21582440231, November.
    3. Muhammad Arif Khan & Xuezhi Qin & Khalil Jebran, 2020. "Uncertainty and leverage nexus: does trade credit matter?," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 10(3), pages 355-389, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Huang, Henry He & Lobo, Gerald J. & Wang, Chong & Xie, Hong, 2016. "Customer concentration and corporate tax avoidance," Journal of Banking & Finance, Elsevier, vol. 72(C), pages 184-200.
    2. Paulo Jorge Varela Lopes Dias & Pedro Miguel Gomes Reis, 2018. "The relationship between the effective tax rate and the nominal rate," Contaduría y Administración, Accounting and Management, vol. 63(2), pages 23-24, Junio.
    3. Kovermann, Jost & Velte, Patrick, 2019. "The impact of corporate governance on corporate tax avoidance—A literature review," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 36(C), pages 1-1.
    4. Francis, Bill B. & Hasan, Iftekhar & Sun, Xian & Wu, Qiang, 2016. "CEO political preference and corporate tax sheltering," Journal of Corporate Finance, Elsevier, vol. 38(C), pages 37-53.
    5. Cen, Ling & Maydew, Edward L. & Zhang, Liandong & Zuo, Luo, 2017. "Customer–supplier relationships and corporate tax avoidance," Journal of Financial Economics, Elsevier, vol. 123(2), pages 377-394.
    6. Onur Bayar & Fariz Huseynov & Sabuhi Sardarli, 2018. "Corporate Governance, Tax Avoidance, and Financial Constraints," Financial Management, Financial Management Association International, vol. 47(3), pages 651-677, September.
    7. Shams, Syed & Bose, Sudipta & Gunasekarage, Abeyratna, 2022. "Does corporate tax avoidance promote managerial empire building?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 18(1).
    8. repec:zbw:bofrdp:2016_005 is not listed on IDEAS
    9. Guangyong Lei & Wanwan Wang & Junli Yu & Kam C. Chan, 2022. "Cultural Diversity and Corporate Tax Avoidance: Evidence from Chinese Private Enterprises," Journal of Business Ethics, Springer, vol. 176(2), pages 357-379, March.
    10. Gul, Ferdinand A. & Khedmati, Mehdi & Shams, Syed M.M., 2020. "Managerial acquisitiveness and corporate tax avoidance," Pacific-Basin Finance Journal, Elsevier, vol. 64(C).
    11. Hasan, Iftekhar & Hoi, Chun Keung (Stan) & Wu, Qiang & Zhang, Hao, 2014. "Beauty is in the eye of the beholder: The effect of corporate tax avoidance on the cost of bank loans," Journal of Financial Economics, Elsevier, vol. 113(1), pages 109-130.
    12. Francis, Bill B. & Hasan, Iftekhar & Sun, Xian & Wu, Qiang, 2016. "CEO political preference and corporate tax sheltering," Bank of Finland Research Discussion Papers 5/2016, Bank of Finland.
    13. Chaudhry, Neeru, 2021. "Tax aggressiveness and idiosyncratic volatility," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    14. Giulia Flamini & Paola Vola & Lucrezia Songini & Luca Gnan, 2021. "The Determinants of Tax Aggressiveness in Family Firms: An Investigation of Italian Private Family Firms," Sustainability, MDPI, vol. 13(14), pages 1-21, July.
    15. Allen, Arthur & Francis, Bill B. & Wu, Qiang & Zhao, Yijiang, 2016. "Analyst coverage and corporate tax aggressiveness," Journal of Banking & Finance, Elsevier, vol. 73(C), pages 84-98.
    16. Fangjun Wang & Shuolei Xu & Junqin Sun & Charles P. Cullinan, 2020. "Corporate Tax Avoidance: A Literature Review And Research Agenda," Journal of Economic Surveys, Wiley Blackwell, vol. 34(4), pages 793-811, September.
    17. Martin Jacob & Anna Rohlfing-Bastian & Kai Sandner, 2021. "Why do not all firms engage in tax avoidance?," Review of Managerial Science, Springer, vol. 15(2), pages 459-495, February.
    18. Chyz, James A. & Eulerich, Marc & Fligge, Benjamin & Romney, Miles A., 2023. "Codetermination and aggressive reporting: Audit committee employee representation, tax aggressiveness, and earnings management," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 51(C).
    19. Asiri, Mohammed & Al-Hadi, Ahmed & Taylor, Grantley & Duong, Lien, 2020. "Is corporate tax avoidance associated with investment efficiency?," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    20. repec:zbw:bofrdp:2014_003 is not listed on IDEAS
    21. Brooks, Chris & Godfrey, Chris & Hillenbrand, Carola & Money, Kevin, 2016. "Do investors care about corporate taxes?," Journal of Corporate Finance, Elsevier, vol. 38(C), pages 218-248.
    22. Hasan, Mostafa Monzur & Lobo, Gerald J. & Qiu, Buhui, 2021. "Organizational capital, corporate tax avoidance, and firm value," Journal of Corporate Finance, Elsevier, vol. 70(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:eurasi:v:8:y:2018:i:3:d:10.1007_s40821-017-0082-8. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.