Search results

1 – 10 of over 4000

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.

Article
Publication date: 17 July 2015

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…

6922

Abstract

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
ISSN: 1321-7348

Keywords

Book part
Publication date: 8 August 2014

Cynthia Blanthorne, Hughlene A. Burton and Dann Fisher

This chapter investigates the effect of moral reasoning of tax professionals on the aggressiveness of their reporting recommendations. The findings of the study indicate…

Abstract

This chapter investigates the effect of moral reasoning of tax professionals on the aggressiveness of their reporting recommendations. The findings of the study indicate moral reasoning influences the aggressiveness of tax reporting decisions separate from the influence of client pressure. As the level of moral reasoning increases, the aggressiveness of the reporting position is found to0 decrease. Contrary to prior research, client pressure is not related to tax reporting aggressiveness. Failure to observe this relationship may signal a shift in behavior resulting from the intense public and regulatory scrutiny at the time of data collection which was in the immediate aftermath of the Enron scandal.

Details

Advances in Accounting Behavioral Research
Type: Book
ISBN: 978-1-78190-838-9

Keywords

Article
Publication date: 29 May 2019

Hua Feng, Ahsan Habib and Gao liang Tian

The purpose of this paper is to investigate the association between aggressive tax planning and stock price synchronicity.

Abstract

Purpose

The purpose of this paper is to investigate the association between aggressive tax planning and stock price synchronicity.

Design/methodology/approach

Employing the special institutional background of China, this study constructs tax aggressiveness and stock price synchronicity measures for a large sample of Chinese stocks spanning the period 2003–2015. The authors employ OLS regression as the baseline methodology, and a fixed effect model, the Fama–Macbeth method and GMM as sensitivity checks. Matched samples and difference-in-difference analyses are used to control for endogeneity.

Findings

The authors find a significant and positive association between aggressive tax planning and stock price synchronicity. Because material information about risky tax transactions tends to be hidden in various tax accruals accounts, aggressive tax strategies make financial statements less transparent, thereby, increasing information asymmetry and decreasing stock price informativeness. The authors also find that the firms engaging in aggressive tax planning exhibit relatively high corporate opacity. In addition, the authors find that improvements in the tax enforcement regime, ownership status and high-quality auditors all constrain the adverse effects of tax aggressiveness.

Practical implications

This study has important practical implications for China’s regulators, who are striving to reduce the tax burden of enterprises. It also helps investors to consider investment decisions more appropriately from a taxation perspective.

Originality/value

First, this paper contributes to the stock price efficiency literature by identifying the effect of a hitherto unexamined factor, namely, firm-level aggressive tax planning, on the efficiency of stock prices. Second, this study provides further empirical evidence to support the agency view of tax aggressiveness, and the informational interpretation of stock price synchronicity. Third, this study helps us better understand the effects of firm-level tax policy on firm-specific information capitalization in an environment where overall country-level investor protection is relatively weak.

Details

International Journal of Managerial Finance, vol. 15 no. 5
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 4 February 2021

Carlos E. Jiménez-Angueira, Emeka Nwaeze and Sung-Jin Park

Prior studies document a positive relation between stock prices and tax-related contingent liability, unrecognized tax benefits (UTBs) and interpret the finding as…

Abstract

Purpose

Prior studies document a positive relation between stock prices and tax-related contingent liability, unrecognized tax benefits (UTBs) and interpret the finding as evidence that investors reward tax aggressiveness. The purpose of this paper is to explore the nature of this puzzle finding by considering a link between UTBs and financial reporting strategy and propose that financial reporting conservatism may explain the positive association between UTBs and stock prices.

Design/methodology/approach

To estimate the incremental valuation weights on UTBs, the authors employ the Ohlson (1995) valuation model and regress stock prices on UTBs and its interactions with the proxies for financial reporting conservatism and tax aggressiveness. Further, the authors adopt a UTB estimation model to decompose its balance into the predicted and unpredicted components.

Findings

The authors find that the reporting conservatism has a positive effect on the market valuation of UTBs. The authors also find some evidence that tax aggressiveness increases the valuation weight of UTBs. When UTBs are decomposed into predicted and unpredicted components, the authors find that the effect of financial reporting conservatism is more pronounced for the market valuation of predicted UTBs. Collectively, the evidence suggests that conservative financial reporting is a major driver of the positive valuation of UTBs and that tax aggressiveness plays a less significant role in investors' valuation decisions.

Originality/value

While prior studies focus on how UTBs are associated with stock prices, this paper is the first attempt to explain why UTBs are positively valued by investors.

Details

Asian Review of Accounting, vol. 29 no. 2
Type: Research Article
ISSN: 1321-7348

Keywords

Book part
Publication date: 29 November 2012

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.

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
ISBN: 978-1-78052-764-2

Keywords

Article
Publication date: 1 April 2010

S.G. Nienaber

In an attempt to enhance the core professional values of tax practitioners in South Africa, the South African Revenue Service has proposed the regulation of tax

1229

Abstract

In an attempt to enhance the core professional values of tax practitioners in South Africa, the South African Revenue Service has proposed the regulation of tax practitioners’ services. It is arguable whether or not this would be the only factor to influence the ethical behaviour of tax practitioners. A literature review was conducted to identify factors that could influence the ethical behaviour of tax practitioners. Numerous possibilities emerged. It is therefore recommended that if regulation is to be successful, caution should be exercised in writing a code of best practice for tax practitioners.

Details

Meditari Accountancy Research, vol. 18 no. 1
Type: Research Article
ISSN: 1022-2529

Keywords

Article
Publication date: 1 January 2013

Roman Lanis and Grant Richardson

The purpose of this paper is to empirically test legitimacy theory by comparing the corporate social responsibility (CSR) disclosures of tax aggressive corporations with…

14325

Abstract

Purpose

The purpose of this paper is to empirically test legitimacy theory by comparing the corporate social responsibility (CSR) disclosures of tax aggressive corporations with those of non‐tax aggressive corporations in Australia.

Design/methodology/approach

A unique sample of 20 Australian corporations accused by the Australian Taxation Office of engaging in tax aggressive activities during the 2001‐2006 period was hand‐collected. These 20 tax aggressive corporations were then matched with 20 non‐tax aggressive corporations (based on industry classification, corporation size and time period). This process generated a choice‐based sample of 40 corporations for empirical analysis. Using content analysis techniques, financial accounting data were gathered from the Aspect‐Huntley database and CSR disclosures were individually measured for each corporation in the sample. Various statistical techniques were then used (e.g. paired sample statistics, Pearson correlation analysis and ordinary least squares regression analysis) to test legitimacy theory.

Findings

Overall, the empirical results consistently show a positive and statistically significant association between corporate tax aggressiveness and CSR disclosure, thereby confirming legitimacy theory in the context of corporate tax aggressiveness.

Originality/value

The paper provides empirical evidence in support of legitimacy theory as an explanation for why specific corporations disclose more CSR‐related information than others. Additionally, to the best of the authors' knowledge, the paper is one of the first to document an empirical association between corporate tax aggressiveness and CSR in the literature.

Details

Accounting, Auditing & Accountability Journal, vol. 26 no. 1
Type: Research Article
ISSN: 0951-3574

Keywords

Book part
Publication date: 18 September 2017

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…

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
ISBN: 978-1-78714-524-5

Keywords

Article
Publication date: 1 June 2006

Rex Marshall, Malcolm Smith and Robert Armstrong

The purpose of this paper is to focus on the role of the tax agent as a preparer of tax returns and provider of professional tax advice under a system based on…

3865

Abstract

Purpose

The purpose of this paper is to focus on the role of the tax agent as a preparer of tax returns and provider of professional tax advice under a system based on self‐assessment principles. It recognises the competing pressures under which tax agents attempt to discharge their professional responsibilities, and examines the implications for potentially unethical behaviour.

Design/methodology/approach

The paper uses a mail survey of tax professionals in Western Australia. Respondents are presented with realistic tax return scenarios, in which the demands of the client are varied according to the risk of audit, the severity of tax law and the materiality of dollar amounts involved.

Findings

The findings suggest that the severity of tax law violation is an important factor in ethical decision‐making, but that audit risk and the amounts involved are not.

Research limitations/implications

The lack of support for audit risk as an influential variable is an important outcome, because policy makers have traditionally proceeded on the basis that increases in audit probabilities will reduce the likelihood of taxpayers adopting aggressive tax reporting positions. However, since the findings are based on an Australian sample, care must be taken in generalizing these findings elsewhere.

Practical implications

The implications are important in that alternative enforcement and compliance strategies must be considered by tax administrators.

Originality/value

The paper extends empirical research into taxpayer attitudes to those of the preparers of tax returns. The findings will be of relevance both to tax agents and to tax administrators.

Details

Managerial Auditing Journal, vol. 21 no. 5
Type: Research Article
ISSN: 0268-6902

Keywords

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