Effects of Managerial Ability on Tax Avoidance and Market Value, Using Data Envelopment Analysis Method

Abstract

The aim of this study is to investigate the effects of managerial ability on tax avoidance in companies listed in the Tehran Stock Exchange (TSE). Tax avoidance was determined by the effective tax rate and the book difference of taxes. Managerial ability was measured by the rate of return on assets as the indicator in the traditional approach, and by data envelopment analysis (DEA) method, introduced by Demirjian et al. (2012), as the new approach. The sample consists of 81 companies in the TSE, in the period 2006-2014. To test the Hypotheses, multiple regression method was used. The results indicated that managerial ability has significantly negative effect on tax avoidance that is consistent with the agency theory. The other findings showed that tax avoidance and its interaction with managerial ability lacks significant effect on companies’ market value, and hence, cannot affect the investors’ behavior in the capital market.

Keywords

• managerial ability
• tax avoidance
• company's market value
• data envelopment analysis (dea)