The Effect of Earnings Management on Tax Avoidance by Considering the Role of Political Connections in Companies Listed on the Tehran Stock Exchange

Taxes are one of the most important sources of government revenue, which in addition to providing the financial resources that the government needs, help to better distribute income and wealth. The composition of tax revenues as well as the share of taxes in total public revenues differs from one country to another due to economic, cultural and historical conditions. Tax avoidance causes countries' tax revenues to always be lower than estimated; therefore, the factors affecting it are important. The present study examines the effect of political connections on the relationship between earnings management and tax avoidance. In order to achieve the above objectives, two hypotheses were formulated. Therefore, in order to test the research hypothesis, a sample of 140 firms was selected from the firms listed in Tehran Stock Exchange during the period 2015 to 2021. Multivariate regression model based on combined data was used to test the research hypothesis. The findings of the research showed that earnings management has a positive and significant effect on tax avoidance, that is, the increase in earnings management leads to an increase in tax avoidance; Furthermore, the results indicate that political connections strengthen the relationship between earnings management and tax avoidance.