Cash effective tax rate is a measurement for tax avoidance or earnings management?

The purpose of this paper is to examine whether cash effective tax rate is a suitable criterion to measuring tax avoidance? This is important because it can affect the results of the research in the field of tax avoidance. A sample of 102 companies (including 714 firm-year observations) listed in Tehran Stock Exchange (TSE) which have positive pre-tax income for the period of 1384-1391 have been selected to test the hypotheses.
Using multivariable regressions and panel data to test hypotheses, the results suggest that the cash effective tax rate is not a suitable criterion to measure tax avoidance. Because this rate, reflects two distinct effects; tax avoidance effect and upward earnings management effect. This is due to the pre-tax income in denominator which can be affected by activities designed to manage pre-tax income that have no effect on taxes paid. Using this rate for measuring tax avoidance in issues that also can drive by earnings management may distort the results.