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Book part
Publication date: 18 September 2017

Reconciling the Conflicting Results of Prior Research on the Relation between Aggressive Book and Tax Reporting

Sarah C. Lyon

I reexamine the conflicting results in Frank, Lynch, and Rego (2009) and Lennox, Lisowsky, and Pittman (2013). Frank et al. (2009) conclude that firms can manage book…

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Abstract

I reexamine the conflicting results in Frank, Lynch, and Rego (2009) and Lennox, Lisowsky, and Pittman (2013). Frank et al. (2009) conclude that firms can manage book income upward and taxable income downward in the same period, implying a positive relation between aggressive book and tax reporting. Lennox et al. (2013) conclude the relation is negative and aggressive book reporting informs users that aggressive tax reporting is less likely. I identify four key differences in the research designs across the two studies, including measures of aggressive book reporting, measures of aggressive tax reporting, sample time periods, and empirical models. I systematically examine whether each of these differences is responsible for the conflicting results by altering the key difference while holding other factors as constant as possible. I find the relation between aggressive book and tax reporting is driven by the measure of aggressive book reporting, as the relation is positive for some subsets of firms and negative for others. Firms accused of financial statement fraud have a negative relation while nonfraud firms exhibit a positive relation. Using discretionary accruals, I also look for, but do not find a “pivot point” in the relation between aggressive book and tax reporting. I provide a better understanding of the relation between aggressive book and tax reporting by identifying research design choices that are responsible for prior results. I show that measures of both discretionary accruals and financial statement fraud are necessary to gain a more complete picture of the relation between aggressive book and tax reporting.

Details

Advances in Taxation
Type: Book
DOI: https://doi.org/10.1108/S1058-749720170000024001
ISBN: 978-1-78714-524-5

Keywords

  • Aggressive book reporting
  • aggressive tax reporting
  • book-tax relation
  • measuring book and tax reporting aggressiveness
  • financial statement fraud
  • estimated probability of fraud
  • M40
  • M41
  • M49

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Article
Publication date: 23 March 2020

Do you pass it on? An examination of the consequences of perceived cyber incivility

Kimberly McCarthy, Jone L. Pearce, John Morton and Sarah Lyon

The emerging literature on computer-mediated communication at the study lacks depth in terms of elucidating the consequences of the effects of incivility on employees…

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Purpose

The emerging literature on computer-mediated communication at the study lacks depth in terms of elucidating the consequences of the effects of incivility on employees. This study aims to compare face-to-face incivility with incivility encountered via e-mail on both task performance and performance evaluation.

Design/methodology/approach

In two experimental studies, the authors test whether exposure to incivility via e-mail reduces individual task performance beyond that of face-to-face incivility and weather exposure to that incivility results in lower performance evaluations for third-parties.

Findings

The authors show that being exposed to cyber incivility does decrease performance on a subsequent task. The authors also find that exposure to rudeness, both face-to-face and via e-mail, is contagious and results in lower performance evaluation scores for an uninvolved third party.

Originality/value

This research comprises an empirically grounded study of incivility in the context of e-mail at study, highlights distinctions between it and face-to-face rudeness and reveals the potential risks that cyber incivility poses for employees.

Details

Organization Management Journal, vol. 17 no. 1
Type: Research Article
DOI: https://doi.org/10.1108/OMJ-12-2018-0654
ISSN: 1541-6518

Keywords

  • Email
  • Performance evaluation
  • Incivility
  • Workplace communication

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Book part
Publication date: 18 September 2017

Prelims

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Advances in Taxation
Type: Book
DOI: https://doi.org/10.1108/S1058-749720170000024007
ISBN: 978-1-78714-524-5

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Book part
Publication date: 18 September 2017

Index

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Advances in Taxation
Type: Book
DOI: https://doi.org/10.1108/S1058-749720170000024009
ISBN: 978-1-78714-524-5

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Article
Publication date: 17 July 2015

The effect of financial factors on firms’ financial and tax reporting decisions

Yunsung Koh and Hyun-Ah Lee

The purpose of this paper is to investigate the effect of financial factors on firms’ financial and tax reporting decisions. Firms often face the difficulties of…

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Purpose

The purpose of this paper is to investigate the effect of financial factors on firms’ financial and tax reporting decisions. Firms often face the difficulties of accomplishing both financial and reporting goals. The extent to which reporting they put more value depends on the differential weighting of firms’ financial reporting and tax costs. The authors incorporate various financial factors as a source of cross-sectional differences in the weighing of both financial reporting and tax costs.

Design/methodology/approach

To examine firms’ decisions when fulfilling both the purposes of financial and tax reporting is difficult, the authors use a large set of firms in Korea, where book-tax conformity is high and aggressive tax shelters are restricted. The authors develop a new measure that can specify firms’ decision making between financial and tax reporting by considering both earnings management and tax avoidance.

Findings

The findings show that debt ratio affects firms’ financial and tax reporting decisions non-monotonically depending on the level of the debt ratio. The authors also find that firms with more long-term debt financing are more likely to be aggressive in financial reporting, while firms with higher financing deficit or better access to the capital market are more likely to be aggressive in tax reporting.

Research limitations/implications

Thus, the findings provide more compelling evidence of firms’ decision making between two conflicting strategies, particularly when fulfilling both the purposes of financial and tax reporting is difficult. The authors expect that the results provide practical implications to standard setters, auditors and financial statement users who are interested in the ongoing debate over book-tax tradeoffs.

Originality/value

This paper fulfills an identified need to study how firms’ decision making between two conflicting reporting strategies are affected by the various financial factors, which are closely linked to a firm’s financial reporting and tax costs.

Details

Asian Review of Accounting, vol. 23 no. 2
Type: Research Article
DOI: https://doi.org/10.1108/ARA-01-2014-0016
ISSN: 1321-7348

Keywords

  • Earnings management
  • Tax avoidance
  • Financial factor

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Article
Publication date: 8 October 2018

Do aggressive pro forma earnings-reporting firms have difficulty disclosing intellectual capital? Australian evidence

Yiru Yang

The purpose of this paper is to investigate whether aggressive pro forma earnings-reporting firms are difficult in relation to signalling sufficient intellectual capital…

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Abstract

Purpose

The purpose of this paper is to investigate whether aggressive pro forma earnings-reporting firms are difficult in relation to signalling sufficient intellectual capital (IC), and how the market reacts to aggressive pro forma earnings reporting.

Design/methodology/approach

Content analysis of 610 annual reports of Australian firms listed on the Australian Securities Exchange 200 is used to obtain IC information. Fixed-effects logistic and ordinary least squares (OLS) regressions are used to examine the hypotheses.

Findings

The study finds that aggressive pro forma earnings reporting is negatively and significantly associated with sufficient IC disclosure. Moreover, this paper finds that investors react favourably to aggressive pro forma earnings reporting, and believe that pro forma earnings have greater incremental value-relevance information than statutory earnings.

Research limitations/implications

The coding framework used in this study comprises 33 IC items. Other studies have used coding frameworks comprising fewer or more varied IC items. Therefore, when comparing the results of this and other studies, the interpretation of the findings must recognise the differences in approach.

Practical implications

Sufficient IC disclosure may help investors to distinguish high-reporting-quality firms and low-reporting-quality firms. The paper demonstrates that aggressive pro forma earnings-reporting firms, which are low-reporting-quality firms, are less likely to disclose sufficient IC.

Originality/value

This paper is the first to examine the relationship between aggressive pro forma reporting and IC disclosure. Moreover, this paper built a theoretical framework based on signalling theory to develop research hypotheses, which extend the research on IC underpinned by signalling theory.

Details

Journal of Intellectual Capital, vol. 19 no. 5
Type: Research Article
DOI: https://doi.org/10.1108/JIC-03-2017-0051
ISSN: 1469-1930

Keywords

  • Intellectual capital disclosure
  • Market reaction
  • Aggressive pro forma earnings

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Book part
Publication date: 29 November 2012

Influence of Tax Accounting on Transparency

Silvio Hiroshi Nakao

The purpose of this chapter is to discuss the relation between tax reporting and financial reporting, their influence on transparency, and empirical implications.

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Abstract

The purpose of this chapter is to discuss the relation between tax reporting and financial reporting, their influence on transparency, and empirical implications.

Details

Transparency and Governance in a Global World
Type: Book
DOI: https://doi.org/10.1108/S1569-3767(2012)0000013006
ISBN: 978-1-78052-764-2

Keywords

  • Tax accounting
  • transparency
  • book-tax conformity
  • book-tax differences
  • tax planning
  • earnings management

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Article
Publication date: 1 February 2000

Personality and Cultural Influences on Aggressive Financial Reporting Practices

Dawn Cable and Chris Patel

The objective of this paper is to contribute to the accounting education literature by demonstrating that there are significant differences in judgments between Australian…

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The objective of this paper is to contribute to the accounting education literature by demonstrating that there are significant differences in judgments between Australian and Chinese subjects studying within an Australian university with respect to an important issue in accounting, namely, aggressive financial reporting practices. Aggressive financial reporting is the exercise of professional judgment by accountants (including students preparing for a career in accounting) that fails to depict ‘financial reality’. Our study provides some evidence on the influence of culture (operationalised as one's ethnic background), as well as a personal belief variable, ‘belief in a just world’, on students acceptance of aggressive financial reporting practices. The results have implications for improving accounting education. We suggest that assumptions about uniformity in perceiving Western notions of independence and objectivity embedded in official national and international accounting pronouncements are reflections of ‘culture‐blindness’. Additionally, we suggest that accounting educators may like to ensure that the meanings intended in the official accounting pronouncements which are used as primary teaching material are conveyed to students within specific cultural contexts. Moreover, accounting educators and students need to pay greater attention to the role of various contextual factors in the international accounting harmonisation process.

Details

Asian Review of Accounting, vol. 8 no. 2
Type: Research Article
DOI: https://doi.org/10.1108/eb060729
ISSN: 1321-7348

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Book part
Publication date: 18 September 2017

Market Response to FIN 48 Adoption: A Debt Covenant Theory

Raquel Meyer Alexander, Andrew Gross, G. Ryan Huston and Vernon J. Richardson

We investigate the interaction of debt covenants and tax accounting on the adoption of Financial Interpretation No. 48 (FIN 48). We examine how firms respond to the…

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Abstract

We investigate the interaction of debt covenants and tax accounting on the adoption of Financial Interpretation No. 48 (FIN 48). We examine how firms respond to the potential tightening of covenant slack upon FIN 48 adoption and whether these actions are penalized by creditors and anticipated by equity markets. We find that upon FIN 48 adoption, the majority of sample corporate borrowers increase their tax reserves and reduce equity. Firms close to debt covenant violation were even more likely to increase tax reserves upon FIN 48 adoption; however, the size of the adjustment was relatively smaller, suggesting that the FIN 48 standards limited, but did not eliminate, firms use of discretion in reporting uncertain tax positions to avoid costly covenant violations. For firms near net worth debt covenant violation, the act of decreasing equity upon FIN 48 adoption imposes real economic costs, as the average cost of debt increased by 43 basis points. Finally, we extend prior research on the market response to FIN 48 by showing how the market response to FIN 48 adoption is a function of debt covenant slack and tax aggressiveness. Specifically, the cumulative abnormal return at the FIN 48 exposure draft release date is negative only for tax aggressive firms that are close to debt covenant violation.

Details

Advances in Taxation
Type: Book
DOI: https://doi.org/10.1108/S1058-749720170000024008
ISBN: 978-1-78714-524-5

Keywords

  • Debt covenants
  • covenant slack
  • Income Tax Accounting
  • FIN 48
  • G12
  • G32
  • M41

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Article
Publication date: 1 September 2009

Book‐Tax Difference and Value Relevance of Taxable Income: Malaysian Evidence

Rohaya, Noor, Nor’Azam Mastuki and Barjoyai Bardai

This study investigates the gap between financial accounting income and taxable income (i.e. book‐tax difference) and the value relevance of corporate taxable income in…

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This study investigates the gap between financial accounting income and taxable income (i.e. book‐tax difference) and the value relevance of corporate taxable income in providing information on the quality of reported earnings for Malaysian listed firms during the tax years 2000 to 2004. The large gap between the financial accounting income and taxable income resulting from tax planning activities is reflected in firms’ effective tax rates (ETRs), a proxy for firms’ actual tax burdens. Thus, lower ETRs indicate high tax planning activities undertaken by the sample firms, and vice‐versa for firms with higher ETRs. This study uses a tax‐based earnings quality indicator, that is, the ratio of after‐tax taxable income to reported income (ATTI) to investigate the quality of corporate earnings. The study provides empirical evidence that firms report higher financial accounting income to shareholders and lower taxable income to tax authorities during the years 2000 to 2004. The significant and positive relation statistical results between firms’ after‐tax taxable income (ATTI) and market value of equity provided indicate the value relevance of taxable income as both an earnings quality indicator and a performance measure. Thus, the empirical results suggest investors appear to fully comprehend the quality‐related information in taxable income. This study concludes that first, tax planning activities contribute to a large gap between financial accounting income and taxable income; and second, taxable income contains useful information on the quality of reported earnings.

Details

Journal of Financial Reporting and Accounting, vol. 7 no. 2
Type: Research Article
DOI: https://doi.org/10.1108/19852510980000002
ISSN: 1985-2517

Keywords

  • Tax planning
  • Accounting income
  • Taxable income
  • Earnings quality
  • Malaysia
  • Effective tax rates

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