Search results

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.

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.

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.

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.

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.

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

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.

The purpose of this paper is to investigate the influence of state shareholding and control versus institutional investors on tax aggressiveness of Chinese listed firms.

By exploring recently available tax reconciliation data required under 2006 Accounting Standards for Business Enterprises on a sample of Chinese A-share listed firms, the authors calculate a direct measure of tax aggressiveness and investigate the influence of firm ownership structure on their tax aggressiveness.

The authors find that state ownership and control are positively associated with corporate tax aggressiveness. A positive link between the collective shareholding by the top ten shareholders and firm tax aggressiveness is also found. In contrast, institutional share ownership is negatively associated with corporate tax aggressiveness.

The results indicate that political connections and ownership concentration empower firms to pursue aggressive tax planning, whereas institutional investors partially mitigate such influences.

This paper complements recent studies on tax aggressiveness in the USA by analyzing tax planning activities of Chinese listed firms. The authors highlight firm ownership and control factors that encourage aggressive tax planning in China. This paper has important implications for both public policy and corporate governance in emerging markets similar to China.

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.

The purpose of this study is to examine the impact of tax planning (TP), which measured by the component of tax saving (TS), namely, permanent differences (PDs), temporary differences (TDF), foreign tax rates (FTRs) differentials and tax losses (TLOS) on tax disclosure (TD).

This study uses panel data set from sample consisted of 286 non-financial listed companies in the main market of Bursa Malaysia (formerly known as Kuala Lumpur stock exchange) for three years 2010-2012. The empirical understanding of TD depends on publicly source of data in the financial statement, characterized in the aggregated note of tax expenses. TD was measured using modified effective tax rate reconciling items, as it is appropriate in the Malaysian environment. The paper uses multivariate statistical analyses on this sample.

The empirical results of the multivariate regressions indicated that TD exhibits significant positive association with the TLOS component of TS but has significant negative relationship related to the PDs component of TS and TDFs component of TS.

This study extends the prior-related literature by examining the relation between TD and component of TS. This study depends on both the signaling theory and the Scholes–Wolfson framework. These are the main theories concerned with TD and TP (TSs), respectively. Therefore, from a theoretical side, the authors adds to the current theories by verifying that users are the party influenced whether positively or negatively, by the extent of TD or the extent of activities of TP through Malaysian organizations.

The evidence found by this study has important policy and practical knowledge implications for a minimum of three parties, namely, authorities, researchers in academic field and decision-makers and firm managers. The findings can provide them some relevant insights on the importance of TS actions from companies’ perspective and contribute to the discussion of who verifies and deduces from TD directed by companies.

This study is regarded as the first attempt to examine the impact of the component of TS, namely: PDs, TDFs, FTRs differentials and TLOS on TD in a developing nation such as Malaysia. In spite of this paper focuses on a single country, it contributes significant insights to the debate about TD.

This paper aims to examine the impact of CEO (chief executive officer) compensation and CEO attributes on the level of tax aggressiveness of French companies.

The sample comprises 180 firm-year observations of 40 companies listed on the CAC 40 during the period ranging from 2008 to 2018. For the purpose of overcoming the problems of heteroscedasticity and autocorrelation, the authors apply the generalized least square panel regression.

This study’s results corroborate the importance of CEO compensation and CEO attributes as determinants of tax aggressiveness. In addition, the authors come up with the fact that CEO compensation has a negative effect on tax aggressiveness, and that older CEOs and CEOs with accounting expertise are negatively linked with tax aggressiveness. The authors also find out that there is a positive relationship between the CEO tenure and tax aggressiveness. Moreover, the authors report that foreign CEOs are more likely to engage in tax aggressiveness practices than local CEOs.

The unavailability of all annual reports and the use of only one proxy to measure tax aggressiveness present limitations. This study shows significant implications for shareholders, regulators and researchers. As a matter of fact, shareholders will observe the effect of appointing a foreign CEO on the tax aggressiveness level. This study may also provide regulators with new ideas regarding the role of the CEO and its impact on aggressive decision-making. And it brings forth new insight for researchers through adding a foreign CEO as a new determinant of tax aggressiveness.

According to the authors’ knowledge, this study is the first to provide empirical evidence regarding the effect of both CEO compensation and CEO attributes on tax aggressiveness. It also looks into the impact of a foreign CEO on tax aggressiveness.