PURPOSE: This study examines whether board independence affects corporate tax aggressiveness and whether it moderates the relationship between earnings management and tax aggressiveness in Iran, an emerging market in which listed firms benefit from statutory tax incentives.
DESIGN/METHODOLOGY/APPROACH: Using 1,000 firm-year observations from 125 non-financial firms listed on the Tehran Stock Exchange and Farabourse over 2013–2022, we estimate multivariate panel regressions with year fixed effects and heteroskedasticity-consistent standard errors, controlling for industry-level effective tax rates that reflect statutory exemptions. Tax aggressiveness is measured by book–tax differences, earnings management by discretionary accruals from the modified Jones model, and board independence by an indicator of an above-average proportion of independent directors. The models are re-estimated for large versus small firms and for firms with high versus low free float.
FINDINGS: Board independence is positively and significantly associated with tax aggressiveness in the full sample and among large firms. Earnings management is positively related to tax aggressiveness, and this relationship is stronger in firms with more independent boards. The direct effect of board independence is significant only in firms with below-average free float, where ownership is more concentrated, whereas its moderating effect is significant in firms with above-average free float.
RESEARCH IMPLICATIONS: In emerging markets with concentrated ownership and generous tax incentives, formally independent boards do not necessarily curb aggressive tax planning. Tax authorities and governance regulators should therefore look beyond board composition when assessing corporate tax risk.
ORIGINALITY/VALUE: The study provides new evidence from Iran, an under-researched setting in which statutory tax rates differ between listed and non-listed firms, and shows how board structure conditions the nexus between earnings management and tax aggressiveness.