Political Connection, Corporate Governance and Tax Aggressiveness

Abstract

Objective: The purpose of this study was to examine the impact of political connection and some key corporate governance proxies, such as independence of the board of directors, institutional shareholders ownership on tax aggressiveness, and the impact of these proxies on the relationship between political connection and tax aggressiveness. Method: The panel data model was used to test and analyze the research hypotheses, and tax aggressiveness was measured by the difference between temporary and permanent book taxes. After applying some restrictions, 121 companies listed in the Tehran Stock Exchange were selected as the sample of the research in 2012-2017. Results: The findings of this study indicated that having a political connection with the government has positive and significant effects on tax aggressiveness, and that the existence of independent board of directors and the amount of institutional shareholders in the company have negative and significant effects on tax aggressiveness. Also, the findings showed that the independence of the board of directors and institutional shareholders reduce the positive relationship between political connection and tax aggressiveness. Conclusion: It can be concluded that because of the advanteges of having relationship with government, companies that have political connection with the government have a high level of tax aggressiveness that can be reduced by using corporate governance mechanisms such as independence of the board of directors and presence of institutional shareholders. These mechanisms may reduce the positive impact of political connection on tax aggressiveness.

Keywords

• political connection
• board independence
• tax aggressiveness
• corporate governance
• institutional shareholder