M.A. Thesis:

The tax avoidance and the cost of equity due to firm's Life Cycle

There are two theories on tax avoidance and cost of equity. The first theory considers tax avoidance as a factor for increasing the owners' wealth (negative relation), and the second one introduces it as the result of the measures taken by the opportunistic managers in misusing the owners' resources (positive relationship). In this research, the relationship between tax avoidance and cost of equity for the admitted companies in Tehran Stock Exchange has been addressed considering the life cycle stages of the companies to determine tax avoidance benefit-cost model. For this purpose, 95 companies listed in Tehran Stock Exchange have been investigated for a six-year period from 2009 to 2014. The book-tax difference was used to measure tax avoidance; meanwhile, Gode and Mohanram model (2003) was utilized to measure cost of equity. Also, the life cycles of the companies were determined using the Dickinson method (2011). The study results using multiple regression test indicate that the relationship between tax avoidance and cost of equity is negative and affected by different stages of the life cycle. In the stages of emergence and decline, this relationship is both negative and meaningless. Also, it has a negative and significant relationship in the stages of growth and maturity. In other words, in the latter stage, the relationship between tax avoidance and cost of equity is worse than the base stage (stagnation). Therefore, tax avoidance aspect in Iran is more powerful than its cost side and it's more prominent for the stages of growth and maturity.

Keywords: Tax avoidance, Cost of equity, Cost of Tax avoidance, Life cycle theory of the company.