The Role of Corporate Diversification in Tax Avoidance in Companies Listed in the Tehran Stock Exchange

Abstract

Purpose of the Study: Tax avoidance means the use of gaps in tax laws for non-payment or late payment of taxes for companies, which is affected by different factors. The present study investigates the impact of diversification on tax avoidance in companies. To this end, the financial information of 384 firms during the period of 2011- 2016 in the Tehran Stock Exchange was examined.
 Methodology: In this research, the required financial information was summarized, classified, and calculated in Excel software and the data were analyzed by using E-views software. The dependent variables were effective tax rate and book-tax difference, while the independent variable was corporate diversification, which shows how to divide the market between business sectors (units) in a company. Control variables include size, financial leverage, company’s loss-making, ROA, capital expenditures, R&D, market to book value, CEO ownership, and management of ownership.
 Conclusions/Results: The findings obtained from this study demonstrate that at a 95% confidence level, there is no significant relationship between diversification and effective tax rates in companies listed in the Tehran Stock Exchange. However, at a 90% confidence level, diversification reduces the effective tax rate. Furthermore, no reliable evidence was found regarding the effect of diversification on book-tax difference at a 95% confidence level.
 Novelty: Tax is a charge imposed by the government on all organizational profits. Various enterprises have complex operations due to their institutional structure, which makes it possible to increase tax avoidance in these companies. The production or sale of a variety of products (diversification) is bigger and has more complex organizational structures that increase the cost of management and non-management decisions, making it difficult for companies to coordinate their policies.
 Thematic classification: G10, M41

Corporate strategies and tax avoidance: Does corporate social responsibility matter?

“…Zheng (2017) also reveals that firms do not increase their tax avoidance significantly after corporate diversification. These findings are in line with Utama et al (2020);Vahdani et al (2019) who demonstrate that diversified firms exhibit greater sales and more stable cash flows. Consequently, they are less likely to engage in tax avoidance for cash-related purposes.…”

The Effect of Diversification Strategy on Corporate Tax Aggressiveness With Board Effectiveness as the Moderating Variable

“…Several studies have examined the relationship between diversification and tax aggressiveness in firms. Some studies found a negative association between corporate diversification and tax aggressiveness (Husnain et al, 2021; Vahdani et al, 2019). Other studies suggest that corporate diversification enables the firms to engage in earnings smoothing for their particular unit segments (Ettredge et al, 2006; Lewellen, 1971).…”

Pengaruh Diversifikasi Usaha Dan Pengendalian Internal Terhadap Penghindaran Pajak (Studi Empiris Pada Perusahaan Tambang Yang Terdaftar Di Bursa Efek Indonesia Tahun 2019-2021

“…Selain itu, pada penelitian (Mawaddah & Darsono, 2022& Rachmawati & Rohman, 2022 menunjukkan pengendalian internal memiliki dampak negatif pada penghindaran pajak. Namun Vahdani et al (2019) mengatakan bahwa penghindaran pajak tidak dipengaruhi oleh diversifikasi usaha, dan penelitian Carolina & Purwantini (2020) mengatakan jika tidak ada pengaruh antara pengendalian internal dan penghindaran pajak. Penelitian ini penting dilakukan untuk memahami dampak dari diversifikasi usaha dan pengendalian internal pada penghindaran pajak dan untuk memperkuat studi sebelumnya yang menghasilkan hasil yang tidak konsisten.…”

“…Kegiatan diversifikasi usaha yang dilakukan suatu perusahaan hanya dapat ditujukan untuk mengembangkan perusahaan sedemikian rupa sehingga meningkatkan keuntungannya dan memperkuat persaingannya dengan perusahaan pesaing. Pengujian ini menemui titik temu yang sesuai dengan hasil Vahdani et al (2019) yang menunjukkan bila diversifikasi usaha selain perusahaan bank, perantara keuangan, perusahaan leasing dan investasi yang terdaftar di BET (Bursa Efek Teheran) tahun 2011-2016 tidak terkait dengan terjadinya penghindaran pajak.…”