scholarly journals Financial Reporting Incentives and Nonconforming Tax Avoidance: Evidence from Public and Private Firms in Korea.

2020 ◽  
Author(s):  
Sung-Jin Park ◽  
Young-Woo Ko
Keyword(s):  
Financial Reporting ◽  
Tax Avoidance ◽  
Private Firms ◽  
Public And Private ◽  
Reporting Incentives

Debt financing and classification shifting of private firms

2021 ◽  
Vol 36 (7) ◽  
pp. 921-950
Author(s):  
Heesun Chung ◽  
Bum-Joon Kim ◽  
Eugenia Y. Lee ◽  
Hee-Yeon Sunwoo
Keyword(s):  
Financial Reporting ◽  
Ordinary Least Squares ◽  
Debt Financing ◽  
Private Firms ◽  
Private Debt ◽  
Content Type ◽  
Public Firms ◽  
Reporting Incentives ◽  
Classification Shifting ◽  
Core Earnings

Purpose This study aims to examine whether debt financing creates incentives for private firms to engage in earnings management via classification shifting. Especially, the authors examine whether debt-induced financial reporting incentives differ depending on the type of debt (i.e. public bonds versus private loans) and whether such incentives are influenced by the characteristics of external auditors (i.e. initial audits and auditor size). Design/methodology/approach The study uses data on 93,427 Korean private firms from 2001 to 2016. Classification shifting is measured by the positive correlation between non-core expenses and unexpected core earnings estimated with ordinary least squares. Findings The empirical analyses reveal that private firms engage in classification shifting as do public firms. Importantly, classification shifting is observed only in private firms that have outstanding debt, but not in private firms without debt. Among debt-financing private firms, classification shifting is more prevalent for firms that issue public debt than for firms that only use private debt. In addition, classification shifting of debt-financing private firms is more successful when they are audited by new auditors that are one of the non-Big 4 firms. Research limitations/implications The study provides evidence of classification shifting in private firms, which is novel to the literature. However, the inferences in the study depend on the validity of the model for detecting classification shifting. Practical implications This study helps lenders enhance their understanding on the financial reporting behaviors of borrowing firms. The results in this study suggest that lenders should be cautious in using core earnings for their investment decisions. Originality/value This study contributes to the literature by providing novel evidence of classification shifting in private firms. In addition, the authors contribute to the literature on debt-induced incentives for financial reporting.

The Influence of Tax and Nontax Costs on Book-Tax Reporting Differences: Public and Private Firms

2001 ◽  
Vol 23 (1) ◽  
pp. 1-19 ◽  
Author(s):  
Lillian F. Mills ◽  
Kaye J. Newberry
Keyword(s):  
Financial Reporting ◽  
Tax Policy ◽  
Manufacturing Firms ◽  
Private Firms ◽  
Public And Private ◽  
Policy Perspective ◽  
Public Firms ◽  
Tax Reporting ◽  
Return Data ◽  
Bonus Plan

We provide archival evidence on firms' book-tax reporting differences using tax return data on public and private manufacturing firms. Prior research suggests that managers should report conforming book income to minimize tax-related costs. However, reporting conformity can also impose nontax costs. We find evidence that public firms have generally higher financial-reporting costs that result in larger book-tax differences. In addition, we find that higher debt levels impose greater nontax costs on firms that are privately held or more financially distressed. Finally, our tests of differences among public firms suggest that nontax costs associated with bonus plan thresholds and book income patterns affect their book-tax reporting. Our tests extend prior studies that focus on whether firms engage in specific conforming transactions. From a tax policy perspective, our results suggest that book-tax differences may be a less useful indicator of private firms' aggressive tax positions because they have fewer incentives to report nonconforming book income.

Pengaruh Konvergensi International Financial Reporting Standards (Ifrs) Terhadap Penghindaran Pajak(Tax Avoidance)

2018 ◽  
Vol 26 (2) ◽  
pp. 158-169
Author(s):  
Umi Wahidah ◽  
Sri Ayem
Keyword(s):  
Financial Reporting ◽  
Tax Evasion ◽  
Stock Exchange ◽  
Control Variable ◽  
Tax Avoidance ◽  
Sampling Technique ◽  
International Financial Reporting Standards ◽  
Reporting Standards ◽  
Control Variables ◽  
Financial Reporting Standards

This research aimed to examine the effect of the convergence of International Financial Reporting Standards (IFRS) on tax avoidance on companies listed in Indonesia Stock Exchange. Tax avoidance that used in this research was Cash Efective Tax Rate (CETR). This research is also use the control variable to get other different influence that different such as CSR, size, and earning management (EM. This research used populations sector of transport service companies that listed in Indonesia Stock Exchange. The data of this research taken from secondary data that was from the Indonesia Stock Exchange in the form of Indonesian Capital Market Directory (ICMD) and the annual report of the company 2011-2015. The method of collecting sample was purposive sampling technique, the population that to be sampling in this research was populations that has the criteria of a particular sample. Companies that has the criteria of the research sample as many as 78 companies. The method of analysis used in this research is multiple regression analysis. Based on regression testing shows that the convergence of International Financial Reporting Standards (IFRS) has a positiveand significant impact on tax evasion. This shows that IFRS convergence actually improves tax evasion practices. The control variables of firm size and earnings management also significantly influence the application of IFRS in improving tax avoidance practices, while CSR control variables have no role in convergence IFRS in improving tax evasion practice.

Discretionary Accruals in Italian Private Firms and Non-Linear Bank Loan Granting

2017 ◽  
pp. 83-99
Author(s):  
Elisabetta Mafrolla ◽  
Viola Nobili
Keyword(s):  
Financial Reporting ◽  
Banking System ◽  
Regulatory System ◽  
Discretionary Accruals ◽  
Bank Loans ◽  
Bank Loan ◽  
Banking Union ◽  
Private Firms ◽  
European Banking Union

This paper investigates whether and at what extent private firms reduce the quality of their accruals in order to signal a better portrait to the bank and obtain new or larger bank loans. We measure earnings discretionary accruals of a sample of Italian private firms, testing whether new and larger bank loans are associated with a higher (lower) quality of earnings in borrowers' financial reporting. We study bank loan levels and changes and how they impact discretionary accruals and found that, surprisingly, private firms' discretionary accruals are systematically positively affected by an increase in bank loans, although they are negatively affected by the credit worthiness rating assigned to the borrowers. We find that the monitoring role of the banking system with regard to the adoption of discretionary accruals is effective only when the loan is very large. This paper may have implications for policy-makers as it contributes to the understanding of the shortcomings of the banking regulatory system. This is an extremely relevant issue since the excessive amount of non-performing loans held by Italian banks recently threatened the stability of the European Banking Union as a whole.

Financial Reporting Choices of Large Private Firms

2017 ◽  
Author(s):  
Jennifer J. Gaver ◽  
Paul Mason ◽  
Steven Utke
Keyword(s):  
Financial Reporting ◽  
Private Firms

Auditing, Attestation, and Financial Reporting for an Early American Charity

2017 ◽  
Vol 44 (2) ◽  
pp. 27-46
Author(s):  
Michael Braswell ◽  
Roger B. Daniels
Keyword(s):  
Financial Reporting ◽  
Agency Costs ◽  
Governance Structure ◽  
Social Costs ◽  
Limited Resources ◽  
Public And Private ◽  
Early American ◽  
Financial Condition ◽  
The City

ABSTRACT Our study examines assurance and attestation practices of the Charleston Orphan House from 1790 to 1825 and represents a response to Alchian and Demsetz's (1972) call for research into the nature of stewardship and agency costs among nonprofits by providing evidence of the largely unexplored early American practices (Moussalli 2008; Sargiacomo and Gomes 2011). We document the origins of the assurance and attestation techniques used to legitimize the Charleston Orphan House and to minimize the agency costs faced by its public and private funders. We find that assurance and attestation practices were reflected in the routine publication of the Committee on Accounts reports that served as vital elements of a governance structure that enabled the municipality and philanthropists to monitor the financial condition of the institution. These oversight efforts helped minimize agency costs that naturally arose between the Orphan House and resource providers, making it possible for the City of Charleston and private funders to efficiently allocate limited resources to mitigate social costs of managing the post-revolutionary orphan problem. Our findings provide new insights into early assurance and attestation practices and support Alchian and Demsetz's (1972) conjecture that nonprofits face similar economic motivations for utilizing financial reporting, auditing, and attestation as monitoring mechanisms as do their profit-seeking counterparts.

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