Designing a Tax Risk Assessment Model and Its Effect on the Value of Companies Listed on the Iranian Capital Market

Abstract

Objective: This study is primarily aimed at designing a tax risk assessment model for companies listed on the Tehran Stock Exchange. This research is also aimed at investigating the impact of corporate tax risk on capital asset pricing models and comparing the explanatory power of multifactor capital asset pricing models in relation to corporate tax and a firm’s value. Methods: This research is an applied and analytical-explanatory. The statistical population of this study have all been selected from companies listed on the Tehran Stock Exchange between 2011 and 2017 and the statistical sample has been selected using systematic elimination method of 103 companies. Results: In the study, a model for the assessment of tax risk has been presented. In this model, the quantitative and qualitative variables that had the greatest impact on tax gap were identified and the tax risk was ultimately obtained from the remainder of this model. The results of the study showed that tax risk, in all four models of capital asset pricing, has a significant and negative impact on the value of the company. Another result of the study found that the five-factor pricing model is better able to explain the relationship between tax risk and a company’s value. Conclusion: Understanding the impact of tax risk on a company’s value helps shareholders to make the right decisions when national tax laws are revised. This is mainly because each of these decisions will have different effects on the company's value and its stock price and ultimately the shareholders' wealth and their satisfaction with the company.

Keywords

• tax risk
• company value
• capital asset pricing models
• ranking
• multi-criteria decision-making techniques