The Effect of Firm Size on the Relationship Between Tax Avoidance and Cash Holdings

The accumulation of cash by corporations creates an agency conflict between management and shareholders, which benefits management at the expense of shareholders. A company's ability to generate profits depends on several factors, but lack of cash on hand is one of the most critical, increasing the risk of insolvency for that business. In the context of modern corporations, where there is separation between agent (management) and principals (owners), it is argued that the agent does not always act and perform its duties in the best interests of owners. Due to the asymmetric information between agent and principals, tax avoidance activities, in this case, can be used as a tool to facilitate the opportunistic behaviour of managers which at the end increasing costs borne by the owners (Dhaliwal et al. 2011). With this in mind, the study's overarching goal is to learn how much a different firm size makes in the correlation between tax evasion and cash on hand among Muscat Stock Exchange-traded corporations from 2011 to 2020. This study adopted the companies listed on the Muscat Stock Exchange as its statistical population; 20 companies were chosen using the process of systematic elimination. Hypotheses were examined using a multivariate regression technique and aggregated data. Moreover, the research found that the firm's size negatively modifies the correlation between tax avoidance and cash on hand. This study provides an insight that agency theory in the context of tax avoidance and corporate cash holdings in developing countries such as Oman needs to be explored further as the agency conflict in Indonesia as a developing country is more principal-principal conflicts.