The Impact of the Financial Distress on Tax Avoidance in Listed Firms: Evidence from Tehran Stock Exchange (TSE)

A lot of firms appear to be involved in tax avoidance. For that reason, identification of factors contributing to corporate tax avoidance is of utmost importance. Tax avoidance is an inseparable part of capital management strategies in a firm. In a serious financial crisis firms are confronted with the risk of bankruptcy. Since the potential costs of bankruptcy are high, firms attempt on tax avoidance through certain financial strategies and implementation of plans to reduce their income taxes. The purpose of the present research is to investigate the relationship between financial distress and tax avoidance in firms in the light of recent global financial crisis. This research studies a six-year time period from 2008 to 2013. After application of the determined limitation on the population, 118 firms have been investigated; and after omission of irrelevant data, 708 firm-years have been observed in regard to the three research hypotheses. This is a descriptive-correlational type study which is based on an ex-post-facto design. The obtained results suggest that intensification of global financial crisis as well as firms' financial distress give rise to corporate tax avoidance. Therefor and based on the findings of the present research, auditors and revenue agents, capital market activists, decision makers, analysts, and active or potential investors of Tehran Stock Exchange are advised to pay special attention to income tax returns, analysis of plans for investment in financial assets and listed securities, firms' financial condition (firms' financial distress), and global financial crisis and their relationship with corporate tax avoidance.