Investigating the role of state ownership on the relationship tax avoidance and audit fees: The empirical test of the Deep Pocket Theory

Tax avoidance leads to high information asymmetry of enterprises and weakens the quality of accounting information. Auditors need to implement additional auditing procedures to control audit risks that may arise from tax avoidance, thus charging higher audit fees. Based on the trend of risk-based auditing and “deep pocket” theory. Therefore, based on the risk-based audit process and “deep pocket” theory, the present study investigates the association between tax avoidance and audit fees with respect to the moderating effect of state ownership on listed companies in the Tehran Stock Exchange. To test the research hypotheses, the financial information of the listed companies in Tehran Stock Exchange was used between 2013 and 2017, so that after applying the limitations in this research, a final sample of 88 companies was selected. After measuring the variables of the research, multivariate linear regression analysis was used to test the research hypotheses. The hypothesis test is also done using Eviews econometric software and statistical techniques of panel data. The results of statistical tests indicate that tax avoidance increases the amount of corporate audit fees. In addition, the results show that the positive impact of tax avoidance on audit fees in state-owned companies is far lower. Also, the results of the sensitivity analysis test showed that the use of alternative metrics to measure tax avoidance also has no effect on the main results of the research, and the results of the research are robust.