Impacts of Corporate Governance, Life Cycle, and Asset Liquidity on the Effective Tax Rate and Tax Gap: Empirical Evidence from Iranian Emerging Stock Market

Abstract

Abstract This research investigates the effects of four major corporate governance mechanisms encompassing board independence, institutional ownership, internal auditor, and managerial ownership, and the role of life cycle and liquidity of assets on the effective tax rate and tax gap. The statistical population includes manufacturing companies listed on the Tehran Stock Exchange during the years 2010–2022, and the sample consists of 100 manufacturing companies selected from the population. Data was collected from the Tehran Stock Exchange website. Multivariate panel data regression method and E-views software were used to analyze the data. The findings support the positive effects of institutional ownership, internal auditor, life cycle, and the liquidity of assets, and the negative effect of managerial ownership on the effective tax rate. However, the impact of board independence (percentage of non-executive members of the board) on the effective tax rate is not confirmed. In addition, the results confirm the positive effects of internal auditor, life cycle, and the liquidity of assets, and the negative effects of board independence on the tax gap, while the impacts of institutional ownership and managerial ownership on the tax gap are not verified. Finally, the research concludes by explaining the limitations and recommendations. Accordingly, incorporating these influencing variables potentially improves the accuracy of the tax predictions.