The impact of managerial ability on the relationship between tax avoidance and stock price crash risk: An empirical study

The main objective of this study is to examine the impact of managerial ability on the relationship between tax avoidance and stock price crash risk. To achieve this objective, the researcher examined a sample of 64 companies listed on the Egyptian Stock Exchange and comprised the EGX 100 index for the period from 2014 to 2019. The results showed that tax avoidance has a significant and positive effect on stock price crash risk, and this was confirmed when using the effective tax rate, and partially confirmed when using tax differences. This result is consistent with the agency theory, which suggests that a firm's stock price crash risk increases as a result of tax avoidance. The results also indicated that managerial ability has a positive and statistically significant impact on stock price crash risk, as confirmed when using negative conditional return skewness and down-to-up volatility. This result is consistent with the agency theory, suggesting that managers with higher managerial ability may behave opportunistically by extracting rents from their firms and concealing bad news for an extended period, thereby increasing the probability of stock price crash risk. However, the results revealed that managerial ability has no significant impact on the relationship between tax avoidance and stock price crash risk, which was confirmed in both the main analysis and the additional analysis.