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1. Introduction
This paper analyzes the relationship between the concentration of managerial ownership and the behavior of tax avoidance in Brazilian public companies.
The tax burden in Brazil is heavy, complex and dynamic. In 2014, the tax burden reached 33.47 percent of the gross domestic product (Receita Federal do Brasil, 2015). There are 92 types of taxes in Brazil, and the Brazilian tax legislation has constant modifications. Firms are subject to most taxes; consequently, the direct tax cost and the cost of tax compliance are high for Brazilian firms.
According to Martinez and Ramalho (2014) and Chen et al. (2010), the evidence shows a significant relationship between the classification as a Brazilian family firm and the tax aggressiveness, showing that Brazilian family firm was more aggressive than non-family firm. However, there is no study which investigates whether other firm structures have an impact on tax avoidance in Brazil. The study of Martinez and Ramalho (2014) suggests analyzing whether the association between Brazilian family firms and tax avoidance is mitigated by other factors.
Previous studies show that the ownership structure can explain tax avoidance (Chen et al., 2010; Badertscher et al., 2013; Khurana and Moser, 2013; Minnick and Noga, 2010; McGuire et al., 2014). According to Badertscher et al. (2013, p. 2), Fama and Jensen’s (1983) theory predicts that when equity ownership and corporate decision making are concentrated in just a few numbers of decision makers, these owner-managers will likely be more risk-averse and thus less disposed to invest in risky projects. Rego and Wilson (2012) assert that tax avoidance is a risky activity imposing significant costs on firms and their managers. Badertscher et al. (2013, p. 2) confirm that: “firms with more highly concentrated ownership and control (and thus more risk-averse managers) avoid less income tax than firms with less concentrated ownership and control.”
However, these studies use different samples and the results can be different in the Brazilian context, because of weaker institutions, inefficient tax enforcement (Batista, 2017), heavy tax burden, complex and dynamic tax legislation. Even if institutions are weak and tax inspection is inefficient, companies are subject to the rules imposed by the tax legislation. As the tax burden is heavy, companies, considering self-interest, will try to avoid tax....