| Abstract:
This research investigates the effect of agency costs on tax gap with structural equation modeling approach. To do this, the information has been collected from audited financial statements of firms listed in Tehran stock exchange for a seven-year period from 2006 to 2014. In order to measure agency costs (latent variable) as the independent variable, observable variables have been used like: asset utilization ratio, discretionary expenses, company size, tobins q ratio and free cash flow ratio. Tax gap as dependent variable is calculated using the different of determined tax and declared tax. Profitability and financial leverage ratio are the control variables. After ensuring that measurement patterns and structure of research are acceptable, the results show that agency costs have a negative effect on tax gap, although its intensity is not statistically significant. Also, there is no significant relationship between the control variables (profitability and financial leverage) and the tax gap.
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