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Tax Avoidance and the effect of replacing Trade Credit with Bank Credit. Simultaneous Equation Approach
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Laila Mahdi Hamzah1   , Akbar Zavarirezaei2 , Parviz Piri3 |
1- Doctoral student of Accounting Department, Faculty of Economics and Management, Urmia University, Urmia, Iran
2- Assistant Professor of Department of Accounting, Faculty of Economics and Management, Urmia University, Urmia, Iran , a.zavarirezaei@urmia.ac.ir
3- Associate Professor of Department of Accounting, Faculty of Economics and Management, Urmia University, Urmia, Iran |
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Abstract: (863 Views) |
Objective: It is argued that assessing the effect of tax avoidance on trade credit is important because capital providers jointly consider the level and uncertainty of tax avoidance in their decisions. This issue can also proposed for bank credit, because according to the existing literature, banks consider tax avoidance as a risk in not repaying the loan granted, and by applying strict conditions, they encourage companies to use credit. They encourage trade rather than bank credit. This issue may replace bank credit with trade credit. However, there are reasons that can replace trade credit with the effectiveness of tax avoidance. The basis of companies' reliance on trade credit is transaction cost theories, signaling, and investment-based theory. According to this introduction, the purpose of the current research is to investigate the effect of tax avoidance on the substitution of trade credit and bank credit using the simultaneous equations approach.
Method: Due to the fact that the results of the present research can be used in the decision-making process, the present study belongs to the branch of applied research, and since the data were collected based on real information of the past, it is of a posteriori type. It is an event. Also, this research is descriptive-correlational in nature. In this type of research, the goal is to study and investigate the relationships between research variables. Based on the conditions and limitations applied to the statistical population of the research, a sample consisting of 106 companies admitted to the Tehran Stock Exchange were selected and using multivariable regression models and the system of simultaneous equations and using Stata and Eviews have been tested.
Findings: The results show that with the increase in the level of tax avoidance, the trade credit granted through the suppliers of financial resources decreases. In addition, the results prove that bank credit has replaced trade credit in Iran's economic environment, but the hypothesis of the effect of tax avoidance on companies' reliance on trade credit and as a result the reduction of bank credit was not confirmed. Finally, it was found that tax avoidance does not have a significant effect on bank credit.
Conclusion: There are various reasons to justify the negative impact of tax avoidance on teade credit. First, it is possible that financial providers provide less trade credit to tax avoiders due to their risk-averse nature (Edwards, Schwab, & Shulin, 2016). Also, tax avoidance may act as a source of temporary financing and have a negative impact on business credit (Hasan and Habib, 2023). In addition, the results of the descriptive statistics of this study show that a large part of the capital structure of the investigated companies is covered by bank debts. The argument of the researchers of the present study is that this case is created under the influence of inflationary conditions. The continuous increase in prices increases the willingness of companies to finance through the bank, and on the other hand, the trade creditor is not willing to grant credit in such a situation because of the loss caused by replacing the current credit. This subject also confirms the results of the second hypothesis through the simultaneous equations approach and the results of this hypothesis show that tax avoidance does not increase the use of trade credit by reducing the company's reliance on bank credit. The most obvious reason that can achieve this result is Iran's economic conditions and environment. The difference between the results of the present study and foreign research shows that the average amount of bank debt used in the capital structure of Iranian companies is approximately three times higher than that of foreign companies. The results show that bank credit providers do not attach importance to tax avoidance or reduce this risk by applying strict conditions. Therefore, in general, it can be stated that the hypothesis of substitution of trade credit and bank credit is confirmed, but the reason for this substitution is not tax avoidance, and in the conditions of the statistical population of the present study, it is bank credit that replaces trade credit.
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Article number: 2 |
| Keywords: Tax Avoidance, Trade Credit, Bank Credit, Information Asymmetry, Simultaneous Equation Approach |
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Full-Text [PDF 696 kb]
(164 Downloads)
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Article type: Research |
Subject:
Special
Received: 2024/08/10 | Accepted: 2024/09/18 | Published: 2024/12/30
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