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1 – 10 of 54Bill B. Francis, Xian Sun, Chia-Hsiang Weng and Qiang Wu
The aim of this paper is to examine how managerial ability affects corporate tax aggressiveness.
Abstract
Purpose
The aim of this paper is to examine how managerial ability affects corporate tax aggressiveness.
Design/methodology/approach
The study follows the work of Demerjian, Lev, and McVay (2012) and quantifies managerial ability by calculating how efficiently managers generate revenues from given economic resources using the data envelopment analysis (DEA) approach. The study uses a wide range of measures of tax aggressiveness. Firm fixed-effects regressions and a difference-in-differences approach using information regarding CEO turnover to control for endogeneity are used.
Findings
The study finds a negative relationship between managerial ability and corporate tax aggressiveness. Further tests show that this negative relationship is more pronounced for firms with higher investment opportunities or firms with more reputational concerns.
Originality/value
Given the significant costs associated with tax aggressiveness and the negative effect it can have on managerial reputation if discovered, the results suggest that more able managers invest less effort in aggressive tax avoidance activities. This study furthers the understanding of how managerial personal traits affect corporate decision-making.
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Anshu Duhoon and Mohinder Singh
The increased interest among academicians to explore more about tax management behavior is evident in the literature on corporate tax avoidance. This paper aims to illustrate the…
Abstract
Purpose
The increased interest among academicians to explore more about tax management behavior is evident in the literature on corporate tax avoidance. This paper aims to illustrate the multiple aspects that influence the tax avoidance behavior of corporations and its impacts through the systematic review method.
Design/methodology/approach
This study used “Tax Avoidance” OR “Tax Aggressiveness” OR “Tax Planning” as search strings to extract the relevant literature from the Scopus database. This study is a comprehensive analysis of existing literature on corporate tax avoidance behavior. Further, the keyword network analysis has been used to find out the most explored and dry research areas related to corporate tax avoidance behavior using VOSviewer software.
Findings
The study finds that taxation decision is an important managerial decision. Managers adopt tax avoidance tactics to boost postax profits to meet the shareholders’ expectations, particularly of risk-averse shareholders, and sometimes for their benefit also. With this, this study also finds that firms’ characteristics, political connections and corporate social responsibility activities also impact taxation decisions. In addition, the study identifies that tax-avoiding behavior has a contradictory impact on firm value, market growth and corporate transparency disclosure decisions.
Research limitations/implications
The study assists the researchers by providing a brief overview of tax avoidance behavior, for corporates in understanding the implications of tax avoidance, and for policymakers to fix the taxation loopholes and bring necessary tax reforms.
Originality/value
This study adds to the existing literature by providing a thorough overview of theories, determinants and outcomes of corporate tax avoidance behavior.
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Alessandro Gabrielli and Giulio Greco
Drawing on the resource-based view (RBV), this study investigates how tax planning affects the likelihood of financial default in different stages of the corporate life cycle.
Abstract
Purpose
Drawing on the resource-based view (RBV), this study investigates how tax planning affects the likelihood of financial default in different stages of the corporate life cycle.
Design/methodology/approach
Collecting a large sample of US firms between 1989 and 2016, hypotheses are tested using a hazard model. Several robustness and endogeneity checks corroborate the main findings.
Findings
The results show that tax-planning firms are less likely to default in the introduction and decline stages, while they are more likely to default in the growth and maturity stages. The findings suggest that introductory and declining firms use cash resources obtained from tax planning efficiently to meet their needs and acquire other useful resources. In growing and mature firms, tax aggressiveness generates unnecessary slack resources, weakens managerial discipline and increases reputational risks.
Practical implications
The results shed light on the benefits and costs associated with tax planning throughout firms' life cycle, holding great significance for managers, investors, lenders and other stakeholders.
Originality/value
This study contributes to the literature that examines resource management at different life cycle stages by showing that cash resources from tax planning are managed in distinctive ways in each life cycle stage, having a varied impact on the likelihood of default. The authors shed light on underexplored cash resources. Furthermore, this study shows the potential linkages between the agency theory and RBV.
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Mahdi Salehi, Hossein Tarighi and Tahereh Alidoust Shahri
The purpose of this paper is to investigate the relationship between auditor characteristics and the level of tax avoidance in an emerging market.
Abstract
Purpose
The purpose of this paper is to investigate the relationship between auditor characteristics and the level of tax avoidance in an emerging market.
Design/methodology/approach
In this regard, the effect of various factors such as auditor tenure, auditor industry specialization, audit reports and audit fees on tax avoidance was examined. The study sample includes listed companies in the Tehran Stock Exchange. The time period of study is six years from 2011 to 2016. Also in this study, firm size, leverage, firm age and auditor size were controlled.
Findings
The results of this research were determined in four hypotheses. First and second hypotheses that explore the relationship between auditor tenure and auditor industry specialization with tax avoidance were not confirmed. But the results showed a significant relationship between the type of audit opinions and audit fees with tax avoidance.
Originality/value
The current study investigates the auditor characteristics on tax avoidance in a developing nation of Iran and the results may helpful the developing countries.
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Luca Menicacci and Lorenzo Simoni
This study aims to investigate the role of negative media coverage of environmental, social and governance (ESG) issues in deterring tax avoidance. Inspired by media…
Abstract
Purpose
This study aims to investigate the role of negative media coverage of environmental, social and governance (ESG) issues in deterring tax avoidance. Inspired by media agenda-setting theory and legitimacy theory, this study hypothesises that an increase in ESG negative media coverage should cause a reputational drawback, leading companies to reduce tax avoidance to regain their legitimacy. Hence, this study examines a novel channel that links ESG and taxation.
Design/methodology/approach
This study uses panel regression analysis to examine the relationship between negative media coverage of ESG issues and tax avoidance among the largest European entities. This study considers different measures of tax avoidance and negative media coverage.
Findings
The results show that negative media coverage of ESG issues is negatively associated with tax avoidance, suggesting that media can act as an external monitor for corporate taxation.
Practical implications
The findings have implications for policymakers and regulators, which should consider tax transparency when dealing with ESG disclosure requirements. Tax disclosure should be integrated into ESG reporting.
Social implications
The study has social implications related to the media, which act as watchdogs for firms’ irresponsible practices. According to this study’s findings, increased media pressure has the power to induce a better alignment between declared ESG policies and tax strategies.
Originality/value
This study contributes to the literature on the mechanisms that discourage tax avoidance and the literature on the relationship between ESG and taxation by shedding light on the role of media coverage.
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Astrid Rudyanto, Julisar Julisar and Debora Debora
This research aims to examine the association between political connection and tax aggressiveness during the COVID-19 pandemic and the role of business ethics in the association…
Abstract
Purpose
This research aims to examine the association between political connection and tax aggressiveness during the COVID-19 pandemic and the role of business ethics in the association between political connection and tax aggressiveness.
Design/methodology/approach
This study employs a multiple regression method for 147 manufacturing firms listed on the Indonesia Stock Exchange during the pandemic era.
Findings
Political connection has no association with tax aggressiveness. However, political connection has a negative (positive) association with tax aggressiveness in more (less) ethical firms. The results are robust after controlling for year-fixed effects, endogeneity issues and other tax aggressiveness measurements.
Originality/value
Political connection is often cited as the driver of unethical business, including tax aggressiveness. However, this paper claims and finds that political connection is a double-edged sword. Ethical firms use political connection to reduce their tax aggressiveness, and vice versa. Previous research has paid little attention to this topic. This paper also uses COVID-19 as a natural experiment to highlight the importance of corporate social responsibility activities as business ethics.
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Antonio Lopo Martinez, Hettore Sias Telles and Viviane Chiachio
The purpose of this paper is to investigate whether companies that donate to winning electoral campaigns are more aggressive in terms of tax planning than companies that do not…
Abstract
Purpose
The purpose of this paper is to investigate whether companies that donate to winning electoral campaigns are more aggressive in terms of tax planning than companies that do not make these contributions. The relationship between politicians and companies may be signaled by political connections in which companies try to get political benefits in exchange for providing politicians with campaign financing. The hypothesis is that a quid pro quo occurs in which these companies benefit from favorable tax treatment that reduces their relative tax burden.
Design/methodology/approach
The focus of this study is donations that were made in the presidential elections of 2010 and 2014. The sample covers the period between 2010 and 2016 for companies listed on the B3 Stock Exchange, using proxies for tax aggressiveness computed based on value-added reporting. Through linear regressions, the authors have tested whether the companies that made these campaign contributions tend to have a lower tax burden.
Findings
The proposed hypothesis was confirmed, revealing that a political connection between campaign donations reduces the tax burden for donating companies during the years following the election. These donations appear to depict an environment characterized by an exchange of favors in which the donating companies exhibit greater tax aggressiveness than non-donating companies.
Originality/value
The current study deals with a subject that has not yet been examined empirically in Brazil and reinforces the position adopted by the Supreme Court in prohibiting campaign donations to inhibit quid pro quo practices. The study offers additional arguments for the criminalization of the so-called “second set of books” used to record electoral campaign contributions.
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Hong Fan and Liqiang Chen
The purpose of this paper is to investigate the effects of political connections on the association between firms' business strategy and their tax aggressiveness in an emerging…
Abstract
Purpose
The purpose of this paper is to investigate the effects of political connections on the association between firms' business strategy and their tax aggressiveness in an emerging economy such as China.
Design/methodology/approach
The authors study a large sample of Chinese public firms from 2011 to 2017 using a panel regression model. In addition, a change analysis, an instrument variable test and alternative measures/samples are implemented as robustness tests.
Findings
Firms adopting innovative business strategy are more tax aggressive overall. However, innovative firms with political connections are less tax aggressive compared to those without political connections.
Originality/value
This paper contributes to the understanding of firms' tax behaviors in an emerging economy setting. It suggests that there are costs associated with political connections, such as foregone tax saving opportunities, which are understudies in the prior literature.
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Fadoua Toumi, Mohamed Amine Bouraoui and Hichem Khlif
This paper aims to study the effect of Hofstede’s cultural dimensions (power distance, individualism, masculinity, uncertainty avoidance and long-term orientation) on corporate tax…
Abstract
Purpose
This paper aims to study the effect of Hofstede’s cultural dimensions (power distance, individualism, masculinity, uncertainty avoidance and long-term orientation) on corporate tax avoidance as proxied by the effective tax rate.
Design/methodology/approach
A sample of 944 observations during 2016 was analyzed at three different quantiles (Q 0.25, Q 0.50 and Q 0.75) based on a quantile regression approach.
Findings
Using Hofstede’s (2001) cultural dimensions (power distance, individualism, masculinity, uncertainty avoidance and long-term orientation), the authors find that individualism and masculinity are negatively associated with effective tax rates, and this negative relationship is more pronounced under low tax aggressiveness regime (third quantile). By contrast, long-term orientation is positively associated with the effective tax rate, and this relationship is more prevailing under aggressive tax regime (first quantile). These findings remain stable when using cash effective tax rate as an alternative measure for tax avoidance.
Originality/value
This study adds to the extant literature a further understanding of the impact of cultural dimensions on tax avoidance. The use of quantile regression approach shows how the effect of masculinity, individualism and long-term orientation on tax avoidance varies under different tax management regimes.
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Akmalia Ariff, Wan Adibah Wan Ismail, Khairul Anuar Kamarudin and Mohd Taufik Mohd Suffian
This paper examines whether financial distress is associated with tax avoidance and whether the COVID-19 pandemic moderates such association.
Abstract
Purpose
This paper examines whether financial distress is associated with tax avoidance and whether the COVID-19 pandemic moderates such association.
Design/methodology/approach
The sample covers 38,958 firm-year observations from 32 countries during the period 2015–2020. Financial distress is measured using the ZSCORE by Altman (1968), while tax avoidance is based on the book-tax difference.
Findings
Financially distressed firms exhibit low tax avoidance pre- and during the pandemic periods. The authors find higher tax avoidance during the pandemic compared to the pre-pandemic period, but the pandemic enhances the negative relationship between financial distress and tax avoidance.
Research limitations/implications
The study offers evidence on how financial distress drives firms to engage in more tax avoidance when firms globally encountered various levels of financial difficulty sparked by the economic challenges of the COVID-19 pandemic.
Practical implications
The findings provide insights to policymakers on the need to monitor and incentivise financially distressed firms, especially during economic challenges due to pandemic.
Originality/value
This study adds to the limited, albeit important, evidence on the joint effect of the COVID-19 pandemic and financial distress on tax avoidance.
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