The Role of Corporate Governance in the Relation between Tax Avoidance and Managerial Empire Building

The aim of this study was to explore the impact of corporate governance on the link between tax avoidance and managerial empire building. According to the theory of managers' personal considerations, managers may not always prioritize decisions that benefit shareholders, but rather focus on maximizing their own interests. The existing literature suggests that managerial aspirations for power can be heightened through corporate tax avoidance activities. Tax avoidance and corporate governance are identified as influential factors in the formation of managerial empires. To test the hypotheses, a sample of 119 companies listed on the Tehran Stock Exchange between 2015 and 2021 was selected. A multivariable regression model was employed in this study using the composite data method. The findings indicated that tax avoidance did not significantly contribute to the formation of managerial empires and corporate governance did not mediate the impact of tax avoidance on managerial empire building. Consequently, managers may refrain from tax avoidance and pursue alternative strategies for power acquisition in order to avoid negative perceptions. It is also noted that corporate governance guidelines were not fully implemented in the companies under study.