Journal of Strategic Management Studies

Journal of Strategic Management Studies

The impact of strategic deviation on tax avoidance: a moderating role of firm risk environment factors

Document Type : Research

Authors
Nafiseh Manian 1
Maryam Emamimibody 2
1 MA student, Department of Accounting, Shahi. C., Islamic Azad University, ShahinShahr, Iran
2 Professor, Faculty of Management and Economics, Tarbiat Modares University, Tehran, Iran
10.22034/smsj.2025.543382.2188
Abstract
Introduction:
To achieve sustainable economic development, governments must rely on tax revenues to finance their current expenditures. However, due to practices such as tax avoidance and tax evasion, tax revenues constitute only a modest portion of national income—highlighting the critical need to understand tax avoidance and its underlying drivers. Tax avoidance entails exploiting legal loopholes to minimize tax obligations, yielding significant cash savings for companies and facilitating wealth transfers from the government to shareholders. Yet, these strategies also incur costs, such as reputational harm, tax penalties, and elevated agency costs. A pivotal determinant of corporate tax behavior is strategic deviation, which measures how far a firm's strategic posture diverges from prevailing industry norms. Firms with pronounced strategic deviation typically encounter heightened uncertainty and environmental risks, fostering opportunistic actions like tax avoidance. Key firm-level risk factors moderate this dynamic:
· Financial constraints—a firm's difficulty in securing adequate funding for optimal growth—amplify tax avoidance tendencies. Constrained firms prioritize internal cash preservation, as external financing proves costly or unattainable.
· Institutional ownership, embodied by influential shareholders (e.g., banks, financial institutions, government entities), imposes robust monitoring that diminishes strategic deviation's influence on tax avoidance.
· Product market competition escalates operational risks and pressures, thereby strengthening the link between strategic deviation and tax avoidance.
These institutional and structural elements profoundly shape corporate tax strategies. Policymakers and regulators should integrate them into robust oversight frameworks to curb avoidance while promoting fiscal sustainability.
Methodology:
The present research is descriptive in nature, applied in terms of its objective, and falls within the scope of deductive and retrospective studies using quantitative data. The statistical population of the present study includes companies admitted to the Tehran Stock Exchange from various industries. Using systematic elimination, 124 companies from those listed on the Tehran Stock Exchange during the period 2016–2023 were selected as the statistical population. Therefore, the observations of the present study over the time span from 2016 to 2023 amount to 922 company-year observations (8 years × 124 companies(. In this study, four hypotheses examined.
Results and Discussion:
The findings of this study indicate that strategic deviation has a positive and statistically significant impact on tax avoidance. With a coefficient of 0.002 and a p-value of 0.006, the first hypothesis is confirmed at the 95% confidence level. Moreover, financial constraint, introduced as a moderating variable in the second hypothesis, strengthens this relationship; the interaction term’s coefficient increased from 0.0008 to 0.0012, and its significance level (0.010) falls within the acceptable threshold. In the third hypothesis, institutional ownership is examined as a moderating variable, and the results show that it weakens the relationship between strategic deviation and tax avoidance. Specifically, the interaction term has a negative coefficient (-0.015) and a highly significant p-value (0.000), both supporting the hypothesis. Finally, the findings related to the fourth hypothesis demonstrate that product market competition also amplifies this relationship, with a considerably larger interaction coefficient (0.373) and strong statistical significance (p-value = 0.000), indicating robust explanatory power of the model. Overall, the results suggest that strategic deviation, under specific organizational and environmental conditions, significantly influences corporate tax avoidance, and the presence of moderating variables meaningfully alters the strength and direction of this relationship.
Conclusion:
This study examined the relationship between strategic deviation and tax avoidance in companies listed on the Tehran Stock Exchange through four research hypotheses. The results revealed a significant positive effect of strategic deviation on tax avoidance, indicating that firms diverging from industry-standard strategic paths are more inclined to engage in opportunistic behaviors such as tax avoidance. This pattern aligns with agency theory, which posits that managers often prioritize personal interests over those of shareholders and society, particularly when governance mechanisms are weak.The second hypothesis was also supported, demonstrating that financial constraints amplify this relationship. Limited access to financial resources exerts pressure on managers to preserve liquidity, rendering tax avoidance a more appealing strategy.The third hypothesis confirmed that institutional ownership mitigates the positive effect of strategic deviation on tax avoidance. By strengthening oversight and reducing agency costs, institutional investors function as an effective governance mechanism that curbs managerial opportunism and strategic misalignment.Finally, the fourth hypothesis was validated, revealing that product market competition intensifies the link between strategic deviation and tax avoidance. Competitive pressures constrain profitability, prompting managers to pursue alternative avenues—such as tax minimization—to offset financial shortfalls.Overall, the findings indicate that strategic deviation, under specific organizational and environmental conditions, exerts a significant influence on tax avoidance. Moreover, moderating variables—including financial constraints, institutional ownership, and market competition—play a pivotal role in determining the intensity and direction of this relationship. These results are consistent with recent empirical studies, notably Habib et al. (2024), and contribute meaningfully to the expanding literature on corporate governance, financial behavior, and tax planning strategies.
Keywords
Tax avoidance
Strategic deviation
Risk environment
Subjects
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Journal of Strategic Management Studies
Volume 17, Issue 66
Summer 2026
Pages 317-337

  • Receive Date 25 August 2025
  • Revise Date 19 October 2025
  • Accept Date 14 December 2025