The relationship between tax evasion and the risk of falling stock prices with an emphasis on agency costs

Tax administration refers to the manager's actions and ability to pay less taxes in the long run. A company that seeks tax management and minimizes tax expense has actually taken a draconian approach to taxation. Avoiding tax due to the many economic consequences that may be associated with market factors such as stock prices. The purpose of this study is to investigate the relationship between tax evasion and risk of falling stock prices with an emphasis on representation costs in companies listed on Tehran Stock Exchange. In this regard, 110 companies were selected by the sampling method for the period 1961-2012. To measure tax evasion, the difference between the expected tax rate and the effective tax rate is also used. In this research, regression analysis and hybrid data were used to test the hypotheses. The results showed that there is a positive and significant relationship between tax avoidance and the risk of falling stock prices. This means that with the increase in the difference between the expected tax rate and the effective tax rate, the probability of falling stock prices in the upcoming period increases. There is also a positive relationship between tax avoidance and the risk of falling stock prices in companies with high representation fees.