The investigation of the relationship between tax avoidance and managerial empire-building considering corporate governance

Tax avoidance legally creates economic resources for the firm. Shareholders expect managers to use these resources to increase their wealth, agency theory states that due to the conflict of interests between the manager and the owner, these resources lead to the manager's opportunistic behavior, such as participating in empire-building activities. Besides, attending to all the stakeholders is a must in the stakeholder theory and The purpose of establishing monitoring mechanisms such as corporate governance is to reduce the opportunistic behavior of managers and to align the interests of managers and shareholders. Thus, the research motives to empirically investigate the relationship between tax avoidance and managerial empire-building by considering corporate governance. The statistical population of this research includes 729 firm-year observations obtained from companies admitted to the Tehran Stock Exchange (TSE) from 2013 to 2021. Additionally, a multivariate regression model based on panel data was used to test the research hypotheses, using the generalized least squares (GLS) method.. Examining the research hypotheses showed that tax avoidance significantly increases managerial empire-building activities. In addition, it found that corporate governance mechanisms could not meaningfully deteriorate the relationship.