The Effect of Managerial Overconfidence on Tax Avoidance

Abstract

Tax has as one of the most important income sources for governments has been received from a long time ago. The other hand, companies are always trying to pay less tax. Tax avoidance is one of the tools that managers use to pay less corporate tax. Different factors such as managers' overconfidence affect companies' tax avoidance. The purpose of this study is investigation into the effect of managerial overconfidence on tax avoidance. We study 76 companies listed in Tehran Stock Exchange in the period of 2007 to 2013 to test the hypothesis. For data analysis and hypothesis testing, multivariate regression model and the model of compound data is used. Results show that the effect of managerial overconfidence on tax avoidance is positive and significant. In order words, existence of overconfidence in top managers results in increasing of financial reporting tax avoidance.

Keywords

• Book-tax differences
• Cash ETR
• managerial overconfidence
• Tax avoidance