Investigating impact of Tax Avoidance on Earning Informativeness of Firms Accepted in Tehran Stock Exchange

Subject Areas : Management Accounting

Shima Karami ¹ (کارشناس ارشد حسابداری دانشگاه خوارزمی)
Feriydoon Rahnamay Roodposhti ² (استاد و عضو هیات علمی گروه حسابداری دانشگاه آزاد اسلامی واحد علوم وتحقیقات)
Zahra Dianati dilame ³ (استادیار و عضو هیات علمی دانشگاه خوارزمی)

Received: 2015-04-19 Accepted : 2015-06-22 Published : 2016-04-20

Keywords: Tax Avoidance, earning informativeness, Information Content, information environment, earning management, Reporting,

Abstract :

The purpose of this study is to investigate the effect of tax avoidance on earning in formativeness as one of the explicit consequences of implementing sophisticated tax strategies. Hence,, we run multiple tests on a sample including 70 firms accepted in Tehran Exchange Market over the period 1387 to 1391. Evidence depicts that tax avoidance impairs earning in formativeness, for tax avoidance triggers not only an increase in opaqueness and complexity of financial reporting, but also a reduction in transparency of reports which eventually engenders difficulties for investors in understanding the reported earnings. Thus, investors will put little value on earning in their decision making process. Moreover, further research dealing with explicit consequences of tax avoidance contribute us to identify a reduction in the overall information environment of firms which are at a higher level of tax avoidance. This reveals that management will not be able to fully compensate the potential loss in earning in formativeness associated with tax avoidance (even by disclosing alternative information).

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