The Relationship between Tax Evasion and Future Stock Price Crash Risk: Evidence from Companies Listed in Tehran Stock Exchange (TSE)

Subject Areas : Journal of Investment Knowledge

Mahdi Moradi ¹ , Mohammadali Bagherpour Velashani ² , Amin Rostami ³

1 - دانشیار گروه حسابداری، دانشگاه فردوسی مشهد
2 - استادیار گروه حسابداری، دانشگاه فردوسی مشهد
3 - دانشجوی دکتری حسابداری، دانشگاه فردوسی مشهد

Received: 2015-10-24 Accepted : 2016-01-15 Published : 2015-12-22

Keywords: tax evasion, Future Stock Price Crash Risk, Institutional investors, Non Executive Directors, logistic regression, Panel data,

Abstract :

In this study, the relationship between tax evasion and future stock price crash risk of Companies listed in Tehran stock exchange (TSE), based on data from 70 companies during the years 2005-2012 is examined. To do this, two hypothesis were specified. The statistical methods used in testing hypotheses are logistic and panel data regression. Findings show that tax evasion is positively associated with future stock price crash risk. This finding is consistent with the following view: Tax avoidance facilitates managerial rent extraction and bad news hoarding activities. The hoarding and accumulation of bad news for extended periods lead to stock price crashes when the accumulated hidden bad news crosses a tipping point, and thus comes out all at once. Moreover, the second hypothesis, the positive relation between tax evasion and crash risk is attenuated when firms have strong external monitoring mechanisms such as institutional investors and non executive directors, was not approved.

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