The effect of managerial ability on tax avoidance by classical and Bayesian econometrics in multilevel models

Abstract

PurposeThe purpose of this paper is to investigate the effect of managerial ability on tax avoidance in Tehran Stock Exchange (TSE) and OTC by classifying the income smoother and non-income smoother companies based on the theoretical approaches.Design/methodology/approachTo measure the managerial ability the data envelopment analysis is applied based on the accounting data, company and industry characteristics. In this research, hypotheses are tested for the first time by three statistical methods, namely classical regression models, mixed effect multilevel models, and Bayesian multilevel models, which have never been addressed in Persian accounting research studies. The hypotheses are estimated during a 12-year period from 2004 to 2015 in TSE and OTC. In this research, according to Lucas’s critique, structural change test is used in order to control macroeconomic and political variables affecting the results of the study.FindingsThe results of hypothesis testing by employing three statistical methods suggest that only one hypothesis of this investigation is significant, which shows the significant association of type of market’s impact (exchange of OTC) on the relationship between managerial ability and tax avoidance.Originality/valueEach company’s performance is affected by various factors. The study intends to mention that the performance of listed companies in the stock market depends heavily on its financial reports. And investors with perceived perception by the reports, can indirectly squeeze their stock indexes with their sudden sale of stocks, and question the company’s performance with losses to the company.