Modeling the Moderating Effects of Corporate Governance On the Relation between Social Trust and Tax Avoidance

Today, tax avoidance, as an opportunistic behavior, is considered as one of the major problems which beset tax system. One of the various factors influencing corporate tax avoidance is social trust, such that directors of firms with high social trust level are less inclined to exercise opportunistic behavior and tax avoidance due to ethics in these firms. Therefore, this study aims to investigate the relation between social trust and corporate tax avoidance level, and also the moderating effects (substitutive or complementary) of corporate governance on this relation, using structural equation modeling approach. To do this, book-tax difference and tax effective rate are employed to measure tax avoidance, and Saffarinia and Sharif’s (2010) questionnaire is used to evaluate social trust. The questionnaire is sent to 116 firms among which 82 firms participate in statistical analysis and answer back. Findings reveal that social trust mitigates tax avoidance. In addition, according to prediction of the substitution theory, the results indicate that corporate governance weakens the negative relation between social trust and corporate tax avoidance.