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1 – 10 of 392

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: 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

Article
Publication date: 7 August 2017

Tingting Ying, Brian Wright and Wei Huang

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.

1806

Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Research limitations/implications

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

Originality/value

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.

Details

International Journal of Accounting & Information Management, vol. 25 no. 3
Type: Research Article
ISSN: 1834-7649

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: 5 September 2016

Grant Richardson, Grantley Taylor and Roman Lanis

This paper aims to investigate the impact of women on the board of directors on corporate tax avoidance in Australia.

2411

Abstract

Purpose

This paper aims to investigate the impact of women on the board of directors on corporate tax avoidance in Australia.

Design/methodology/approach

The authors use multivariate regression analysis to test the association between the presence of female directors on the board and tax aggressiveness. They also test for self-selection bias in the regression model by using the two-stage Heckman procedure.

Findings

This paper finds that relative to there being one female board member, high (i.e. greater than one member) female presence on the board of directors reduces the likelihood of tax aggressiveness. The results are robust after controlling for self-selection bias and using several alternative measures of tax aggressiveness.

Research limitations/implications

This study extends the extant literature on corporate governance and tax aggressiveness. This study is subject to several caveats. First, the sample is restricted to publicly listed Australian firms. Second, this study only examines the issue of women on the board of directors and tax aggressiveness in the context of Australia.

Practical implications

This research is timely, as there has been increased pressure by government bodies in Australia and globally to develop policies to increase female representation on the board of directors.

Originality/value

This study is the first to provide empirical evidence concerning the association between the presence of women on the board of directors and tax aggressiveness.

Details

Accounting Research Journal, vol. 29 no. 3
Type: Research Article
ISSN: 1030-9616

Keywords

Article
Publication date: 5 February 2021

Taher HAMZA and Elhem ZAATIR

This study aims to examine the impact of corporate tax aggressiveness on future stock price crash. It also tests the impact of corporate tax aggressivness in predicting…

Abstract

Purpose

This study aims to examine the impact of corporate tax aggressiveness on future stock price crash. It also tests the impact of corporate tax aggressivness in predicting stock price crash for a two-year forecast window.

Design/methodology/approach

The study sample consisted of 1,169 firm-years observations. The multivariate analysis uses three measures of stock price crash risk, as a dependent variable. The key variable is tax aggressiveness lagged by one period (one year) as all independent variables. As a robustness check, this paper uses alternate measures of earning management and a longer forecast window (two years) to predict stock price crash risk.

Findings

Tax aggressiveness activity is positively related to a firm-specific future stock price crash. Moreover, corporate tax aggressiveness predicts stock price crash risk for a long forecast window (two years). The findings are robust to a number of checks and have several policy implications.

Practical implications

The cost of continuing to accumulate bad news will be greater than the cost of revealing them. Thus, board of directors should encourage disclosure in order to reveal private news and then, to increase the amount of firm-specific information in returns. Another point is that tax aggressiveness behavior implies a risk to be perceived by the market as socially irresponsible, and may harm the firm reputation. This fact leads, in terms of portfolio management, to deter investment in firm-equity. Therefore, Investors should be cautious about the different risks of corporate tax aggressiveness.

Social implications

The accounting system in France, as in most European countries, relies upon codified rules and government requirement. Thus, our results provide some evidence of the effectiveness of the French laws and regulations in preventing indirectly earnings management from affecting stock price crash risk.

Originality/value

French companies are among the heavily taxed in Europe which makes France a particularly suitable context for studying tax aggressiveness issues. To the best of our knowledge, this study is the first in the french context, that document a signifcant and positive relation between tax aggressiveness and future crash risk. It focuses on the important role of corporate tax planning as a means of withholding bad news and its consequences in inflating stock prices.

Details

Journal of Financial Reporting and Accounting, vol. 19 no. 1
Type: Research Article
ISSN: 1985-2517

Keywords

Open Access
Article
Publication date: 16 March 2022

Bill 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.

Details

China Accounting and Finance Review, vol. 24 no. 1
Type: Research Article
ISSN: 1029-807X

Keywords

Article
Publication date: 10 May 2022

Antonio Iazzi, Andrea Vacca, Amedeo Maizza and Francesco Schiavone

The purpose of this paper is to investigate the effects of corporate governance mechanisms, namely, board of directors and auditors, on tax aggressiveness in Italian…

Abstract

Purpose

The purpose of this paper is to investigate the effects of corporate governance mechanisms, namely, board of directors and auditors, on tax aggressiveness in Italian companies listed on the Milan Stock Exchange.

Design/methodology/approach

This study used a population of 168 Italian non-financial firms listed on the Milan Stock Exchange, holding shares in at least one foreign subsidiary in countries other than Italy in fiscal year 2018. Data on corporate boards and auditors were collected through the evaluation of companies’ annual reports over the period 2011–2018. Five panel data analyses with fixed effects were performed for each tax aggressiveness index, yielding 1,176 observations to test the research hypothesis.

Findings

This paper finds that corporate board characteristics, such as size, gender diversity and CEO duality, and auditors’ features, such as external audit quality, increase corporate tax aggressiveness.

Practical implications

This study provides investors with an understanding of corporate boards’ and auditors’ roles in preventing agency conflicts and evaluating a company’s tax approach. Furthermore, the findings are useful for international political bodies in regulating corporate board composition and managerial monitoring.

Originality/value

Almost all studies focusing primarily on corporate governance mechanisms’ effects on tax aggressiveness are within the US context. Empirical evidence on the topic in the European contexts is limited. The legislative discrepancy between countries is reflected in the computation of indices measuring tax aggressiveness, affecting US studies' generalizability across nations. This paper extends the literature on the topic by investigating other unexplored corporate governance mechanisms. Five indices were used to measure corporate tax aggressiveness and to assess analysis reliability and data robustness. Moreover, to the best of the authors’ knowledge, this study is the first attempt to investigate the link between corporate governance mechanisms and tax aggressiveness in Italy.

Details

Management Research Review, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2040-8269

Keywords

Open Access
Article
Publication date: 11 October 2019

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…

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.

Details

RAUSP Management Journal, vol. 55 no. 3
Type: Research Article
ISSN: 2531-0488

Keywords

Article
Publication date: 16 November 2015

Liangliang Wang

The purpose of this paper is to investigate the association between corporate tax aggressiveness and cash holdings and that between corporate tax aggressiveness and the…

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Abstract

Purpose

The purpose of this paper is to investigate the association between corporate tax aggressiveness and cash holdings and that between corporate tax aggressiveness and the value of cash. Further, this study explores the impact of the tax enforcement level on the above associations.

Design/methodology/approach

Under a Chinese special institutional background, this study constructs tax aggressiveness and tax enforcement measures. On this basis, using a sample of Chinese A-share listed companies over the period from 1990 to 2010, this study empirically tests the association between tax enforcement, corporate tax aggressiveness, and cash holdings.

Findings

By empirically testing with Chinese listed companies as the sample, this paper finds the following: with the increase in the tax avoidance level, the precautionary incentives of cash, and the level of financial constraint likewise increase, which will make the level of firm cash savings increase. Meanwhile, although tax avoidance will induce lower transparency and higher agency costs, the marginal value of the cash held by the more aggressive firms is higher due to the higher market competition effect of the cash. Additional tests suggest that, the tax enforcement level can weaken the effect of tax avoidance on the transparency and agency problem; however, because the tax enforcement level can also increase the tax risk of the firm, the positive relation between firm’s tax avoidance and cash savings is strengthened correspondingly. On the value of cash holdings, the tax enforcement level can also make the marginal value of tax aggressive firms higher.

Originality/value

First, this paper provides new evidence on the determinants of firm’s cash holdings from the perspective of cash savings. Second, this paper examines the association between Chinese firm’s tax aggressiveness and the value of cash, which not only provides evidence for the local tax literature but also has reference value for the foreign literature. Third, this paper has reference value for research on the association between corporate tax avoidance activities and other operating decisions. Finally, this paper not only provides new evidence on the association between tax enforcement and corporate governance, but also extends the prior literature on the association between corporate tax aggressiveness and cash holdings.

Details

China Finance Review International, vol. 5 no. 4
Type: Research Article
ISSN: 2044-1398

Keywords

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