M.A. Thesis:

TAX Avoidance,cash flows and probaility of bankruptcy

Bankruptcy or financial crisis is one of the most effective and important subjects in financial, economic and investment decisions. The present descriptive/correlational research was practical in terms of objective. Sample population constituted of selected companies in stock exchange of Tehran, from which investment companies, banks and insurance institutions were eliminated due to the nature of their activities. The evaluated variables in this study included the risk of bankruptcy as a dependent variable, cash flows, tax avoidance, free cash flow as independent variables and company size and age as control variable. Data collection was carried out using Rahavard software, stock exchange website and financial statement of companies. According to the results, an adverse association was observed between free cash flow and risk of bankruptcy, as well as cash flows and risk of bankruptcy. On the other hand, there was a positive relationship between tax avoidance and risk of bankruptcy. Therefore, all of the assumptions were confirmed due to the obtained results. Based on the findings of the current research, it could be concluded that avoidance of taxes could lead to financial damages to shareholders. In some cases, activities to avoid taxes might be effective for diversion of financial resources to directors, which could potentially reduce the after-tax value of the company. Tax avoidance has turned into one of the major concerns of many governments in the world. This concept is identified as a solution for decreasing the amount of taxes accruing to a corporate’s profits.

Keywords: Cash flows, avoidance of taxes, risk and bankruptcy, free cash flows, stock exchange