Tax Evasion Methods and Earning Quality; Focusing the Governmental Ownership

Tax is one of the main legal costs that individuals and firms incur due to their income-generating activities.  According to agency theory, one of the motivations for profit management is to reduce tax liabilities and payments by minimizing the effective tax rate. The purpose of this study is to investigate the effect of tax evasion methods on the earning quality. The sample consists of 190 firms listed in Tehran Stock Exchange in the period from 2009 to 2018. Tax evasion methods in this study include tax avoidance, tax evasion and tax profit sustainability. To measure the earning quality, the income-smoothing criterion is used. Hypotheses are tested using the panel data and fixed effects statistical methods through linear regression of ordinary least squares and applying Eviews10 software. The results show that tax evasion, tax avoidance and tax profit sustainability have a significant negative effect on earnings quality and the moderating variable of governmental ownership mitigates this effect.