Effects of Corporate Governance and Management Overconfidence on Tax Avoidance of Firms in the Life-cycle Stages

In the line of analyzing the role of the corporate governance mechanism and behavioral characteristics of managers in corporate financial reporting, this study examines the effects of management overconfidence and governance regime on the tax avoidance considering the lifecycle. The sample consists of 104 firms during the period from 2011 to 2015. Institutional ownership mechanisms and the board independence are used as proxies for corporate governance. Also, to measure management overconfidence, Sherand & Zechman (2012) surplus criteria and to calculate tax avoidance the effective tax rate (ETR) are used. Firms are divided into growth, maturity and decline stages, according to Park and Chen (2006). Results show that there is a significant difference between the institutional ownership of corporate governance mechanisms and the management overconfidence on tax avoidance in the stages of growth, maturity and decline. However, there is no relation between the board's independence of corporate governance mechanisms and tax avoidance, according to Paternoster test.