THE EFFECT OF POLITICAL CONNECTION ON CORPORATE TAX AVOIDANCE: THE MODERATING ROLE OF ACCOUNTING INFORMATION QUALITY

Abstract

This study examines the relationship between the political connection and tax avoidance in all Jordanian market companies, the relationship between accounting information quality and tax avoidance, and the moderating effect of accounting information quality between the political connection and tax avoidance relationship. The sample data of the study includes 206 companies, with a total of 2266 observations from the period from 2008 to 2018. The results indicated that the political connection positively correlates with tax avoidance, which is supported (Jensen & Meckling, 1976). The results of this study also indicated a significant negative association between accounting information quality and tax avoidance. Moreover, the moderating effect of accounting information quality on the political connection and tax avoidance relationship indicated a significant negative association with tax avoidance. Thus, the study supported the agency theory that governance mechanisms such as accounting information quality function led to the reduction of agency problems and reduce information asymmetry. The study finding supported Ward et al.’s (2009) argument and suggested that accounting information quality plays a substitute role rather than a complementary role in mitigating the agency problem. The outcomes of this study could assist the policymaker and companies in the importance of accounting information quality in disciplining political involvement in the Jordanian market.