The Mediation Effect of Corporate Tax Avoidance on the Relation between Earnings Management and Firm Values

This investigation expects to inspect and analyze the effect of derivative transactions on earnings management, the role of corporate tax avoidance in moderating effect of derivative transactions on earnings management, the effect of earnings management worth pertinence of earnings, and the effect of derivative transactions Worth Pertinence of earnings. This examination utilizes information from non-monetary organizations in Indonesia and Thailand for the period 2013-2017 with 91 test of organizations. This investigation, earnings management is calculated based on the Jaggi model and the Jaggi changed model. The value relevance of earnings is calculated based on Ohlson's model. Corporate tax avoidance is calculated based on the book tax difference. The results show that subordinate exchanges have a constructive outcome on earnings management. Corporate tax avoidance has not been proven to strengthen the effect of derivative transactions on earnings management. Earnings management adversely influences the worth pertinence of earnings. Derivative transactions negatively affect the value relevance of earnings. Derivative transactions, especially those with non-hedging criteria, show a high tendency towards earnings management activities. Intercountry testing, derivative transactions have a positive effect on earnings management in Indonesia while in Thailand it does not.

Download Full-text

Earnings Management, Corporate Governance and Tax Avoidance: The Case in Indonesia

Summer - GATR Journal of Finance and Banking Review ◽

10.35609/jfbr.2017.2.4(4) ◽

2017 ◽

Vol 2 (4) ◽

pp. 28-35

Author(s):

Lulus Kurniasih ◽

Sulardi Sulardi ◽

Sri Suranta

Keyword(s):

Corporate Governance ◽

Earnings Management ◽

Audit Quality ◽

Stock Exchange ◽

Tax Avoidance ◽

Governance Mechanisms ◽

Corporate Tax ◽

Effective Tax Rate ◽

Tax Rate ◽

Corporate Governance Mechanisms

Objective - This study aims to determine the effect of earning management and corporate governance mechanisms on corporate tax avoidance. Methodology/Technique - Corporate governance mechanisms use institutional ownership, the size of the board of commissioners, the percentage of independent commissioners, auditing committees, and audit quality as proxies. Meanwhile, earnings management uses the modified Jones model. The sample of this study include non-financial companies that are listed on the Indonesian Stock Exchange (IDX) between 2014 and 2016. Findings - Corporate tax avoidance can be detected by using the effective tax rate (ETR), which is the ratio of income to tax expenses. This sample was chosen using a purposive sampling method, resulting in 871 firms. The results suggest that earnings management has a significant impact on ETR. Novelty - This study identifies that only independent commissioners and audit quality have a significant influence on ETR. Type of Paper - Empirical Keywords: Tax Avoidance; Earnings Management; Corporate Governance; Effective Tax Rate; Audit Quality. JEL Classification: G3, G39, G39.

Download Full-text

Earnings Management in Response to Corporate Tax Rate Reduction Under an Imputation Tax System

The International Journal of Accounting ◽

10.1142/s1094406019500021 ◽

2019 ◽

Vol 54 (01) ◽

pp. 1950002

Author(s):

Nan-Ting Kuo ◽

Cheng-Few Lee

Keyword(s):

Earnings Management ◽

Tax Avoidance ◽

Rate Reduction ◽

Rent Extraction ◽

Corporate Tax ◽

Tax System ◽

Tax Rate ◽

Tax Benefits ◽

Tax Savings ◽

Institutional Shareholders

Our study explores how firms respond to a tax rate reduction under an imputation tax system. By exploring Taiwanese data, we find that firms engage in significant downward earnings management preceding a tax rate reduction, and this earnings management behavior reverses in the following year. We further explore what factors drive this finding, given that corporate tax avoidance reduces shareholder imputation credits and thus generates limited tax benefits to most shareholders. We argue and find evidence that three factors explain the tax-induced earnings management: (1) financing benefits from tax savings, (2) managerial rent extraction, and (3) the influence of foreign and domestic institutional shareholders. Our results suggest that factors other than shareholder tax benefits have significant effects on corporate tax avoidance, suggesting that firms still have strong incentives to avoid taxes under an imputation tax system.

Download Full-text