Master's Thesis in Business Management (Financial Management Major)
October 2013
Chapter One
Research Overview
1-1) Introduction
Income tax is one of the most important costs of companies and usually companies consider it as a cost that they should not pay. Therefore, they try to reduce it and are extremely biased in identifying the expenses and incomes of the companies in order to pay less taxes to the government and also withdraw less liquidity from the company, and most of these decisions are taken by senior managers and the board of directors, so the relationship and impact of these two policies and the responsibility of the board of directors are examined in order to clarify their position in this matter. and its maximization and necessarily in the interest of the shareholders And it is not the government, therefore, it is possible to create costs for the shareholders by adopting a special policy (bold or conservative) in the tax field. It is the activities that the management uses its authority and accounting items to reduce and manipulate profits in order to reduce the tax paid. Since the tax costs are one of the most important costs of the companies and cause the outflow of liquidity from the companies and the dividends It reduces the shareholders, the cost of taxes and payable taxes is always the concern of the executive managers and the board of directors as well as the shareholders of the companies, therefore, the adoption of bold tax policies is one of the policies that is considered in the evaluation of the managers' actions by the shareholders as well as the entire capital market. The stock market is always against applying legal exemptions. The tax laws for companies have shown a positive reaction, thus these policies can be considered and emphasized from the aspect of agency costs and agency theory. Adopting tax policies that are not in line with the interests of shareholders will impose costs under the name of agency costs. And the reaction of the stock market will follow. Various researches have been conducted abroad in this regard, all of which confirm the reaction of the stock market to this type of policy (Stijors and Niskanen, (2011); Lennis and Richardson, (2011); Osimek, (2011); Hanlon and Slamrod, (2009); Chen, Cheng and Shaolin, (2010); Garbarino, (2008)).
On the other hand, the company's senior managers (the board of directors) as the most important pillar of the company who make all kinds of financial and tax decisions, can influence tax policies (of a daring or conservative type). According to the requirement of tax audit by independent auditors according to Article 272 of the Law on Direct Taxes and Selection (proposal) Auditors independent by The board of directors and the approval of the general meeting of shareholders, the board of directors can give an opinion on the amount of unacceptable tax expenses, as well as types of tax exemptions and delays in tax payments, as well as their opinion regarding value added tax, and get approval from tax auditors for everything they consider, and according to the deadline provided in the tax law for the processing and issuance of tax assessment forms and the possibility of appeals and the formation of a dispute resolution council, taxpayers – companies – They can save a lot in their liquidity and there are many of these cases in companies. They can also manipulate the amount of incomes and expenses that can be calculated to determine taxes in different years and cause tax expenses to be transferred to future periods, and since the appointment of independent auditors and tax auditors subject to Article 272 of the Tax Law in Iran are approved by the board of directors' proposal in general meetings, therefore, their impact is also more important. They can choose tax policies in a way that costs impose their representation on the shareholders.
Therefore, in this research, we aim to determine the effect of the composition of the board of directors in terms of the ratio of mandated and non-mandated members and also Their separation from executive managers and their independence from adopting bold tax policies examine and determine whether there is a meaningful relationship between them and in addition explain the direction of their relationship.
1-3) Importance and necessity of research
Investigating factors affecting the type of policies adopted by companies has a special place for shareholders and governments, on the other hand, considering the role and position of the board of directors in commercial law and also emphasizing The corporate governance regulations published by the Iran Stock Exchange Organization, examining the impact of the board of directors on the daring tax policies adopted by companies can help to clarify their exact position. Also, so far, very limited efforts have been made, especially in Iran, in order to investigate the impact of the structure of the board of directors on daring tax policies, so we will investigate it in the present research.
1-4) Objectives and research questions
The overall goal of the research is to explain the impact of the structure of the board of directors of companies on daring tax policies.
Sub-objectives :
Explaining the impact of the ratio of the board of directors' mandated members on daring tax policies.
Explaining the effect of changing the chairmanship of the board of directors on daring tax policies.
Explaining the effect of the dual role of the CEO on daring tax policies.
The main research question:
Does the structure of the board of directors have a significant effect on daring tax policies?
Subquestions:
Is the ratio of members obliged Board of Directors on daring tax policies Does it have a significant effect?
Is the ratio of the change of the chairmanship of the board of directors on daring tax policies Does it have a significant impact?
Is the dual role of the CEO on the bold tax policies Does it have a significant effect?
1-5) Research hypotheses
According to the goals and questions of the research, the hypotheses have been developed as follows:
1- The proportion of board members has a significant effect on daring tax policies.
2- The proportion of board changes on policies Tax prudence has a significant effect. 3- The dual role of the board of directors has a significant effect on tax prudence policies. 1-6) An overview of the internal and external background of the research. Due to the fact that some previous theories and empirical researches are somewhat related to the research topic, a selection of them is mentioned.
Summary of the results of internal research:
Shah Vaisi (1388), concluded that the difference between the principles and rules governing financial accounting and tax accounting causes the difference between accounting profit and taxable profit.
Yegane and Baghomian (2006), while explaining the role of the board of directors in corporate governance, they mentioned the board of directors and the structure of its members as the most fundamental aspect of corporate governance. In this research, there is a lot of emphasis on the non-duality of the duties of the CEO and the non-executive ratio of the board members (at least three of the five members of the board of directors must be non-executive in order to comply with the corporate governance issue).
Pourheidari and Aflatoni (2016), came to the conclusion that profit smoothing is done by using discretionary accruals by managers of Iranian companies, and income tax and deviation in operational activities are the main drivers for Profit smoothing using accruals is optional.
Summary of the results of foreign research:
Lenis and Richardson [1] (2011), the study titled the effects of the composition of the board of directors on tax avoidance and tax reduction policies concluded that the decisions and powers of the board of directors of companies have a significant impact on the application of tax avoidance policies and also the presence of a high share of foreign members in the board. The board reduces the possibility of reckless behavior and reducing taxes.