Do firms using real earnings management care about taxes? Evidence from a high book-tax conformity country

Kałdoński, Michał; Jewartowski, Tomasz

doi:10.1016/j.frl.2019.101351

Cited by 34 publications

(22 citation statements)

References 24 publications

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“…For Europe, related research remains at a very early stage. We believe the only reference available is the work by Kałdoński and Jewartowski (2020), who analyzed a 2005-2017 sample of companies listed in Poland and concluded that tax avoidance and EM presented an inverse relationship.…”

Section: Tax Avoidance and Earnings Managementmentioning

confidence: 99%

Tax avoidance and earnings management: a neural network approach for the largest European economies

et al. 2023

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In this study, we investigate the relationship between tax avoidance and earnings management in the largest five European Union economies by using artificial neural network regressions. This methodology allows us to deal with nonlinearities detected in the data, which is the principal contribution to the previous literature. We analyzed Compustat data for Germany, the United Kingdom, France, Italy, and Spain for the 2006–2015 period, focusing on discretionary accruals. We considered three tax avoidance measures, two based on the effective tax rate (ETR) and one on book-tax differences (BTD). Our results indicate the presence of nonlinear patterns and a positive, statistically significant relationship between discretionary accruals and both ETR indicators implying that when companies resort to earnings management, a larger taxable income—and thus higher ETR and lesser tax avoidance– would ensue. Hence, as also highlighted by the fact that discretionary accruals do not appear to affect BTD, our evidence does not suggest that companies are exploiting tax manipulation to reduce their tax payments; thus, the gap between accounting and taxation seems largely unaffected by earnings management.

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Section: Tax Avoidance and Earnings Managementmentioning

confidence: 99%

Tax avoidance and earnings management: a neural network approach for the largest European economies

et al. 2023

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“…The increased tax burden attributable to REM can be reduced through aggressive tax planning, but at the expense of increased regulatory scrutiny. Kałdoński and Jewartowski (2020) find that SUSPECT firms that use REM as a tool to meet or beat earnings targets are less tax aggressive than their non‐REM‐using peers. Further results indicate that overvalued firms engaged in REM activities are less aggressive tax planners than their peers, and SUSPECT firms with high analyst coverage are less aggressive tax planners than firms with less analyst coverage.…”

Section: Consequences Of Remmentioning

confidence: 99%

Real earnings management: A review of the international literature

Habib

Ranasinghe

et al. 2022

Accounting & Finance

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We provide a systematic literature review of the determinants and consequences of real earnings management (REM) in an international context. We provide a theoretical framework for REM, the development of REM measures, and review the determinants of REM, categorising these into financial reporting, auditing, governance and controls, capital market incentives, and regulatory determinants. We then review the empirical literature on the consequences of REM. We provide some suggestions for future research on measurement issues related to REM, and on filling gaps in the empirical research investigating its determinants and consequences.

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“…Lambrecht examines the timing and terms of mergers where there is EOS (Lambrecht, 2004). Controlling for size shows economies of scale in reducing the tax burden (Kałdoński & Jewartowski, 2020). This finding supports the current essay conclusion that there is a negative relationship between EOS ( size potential ) and stock returns.…”

Section: Literature Reviewmentioning

confidence: 99%

Size, size potential, and expected stock returns

Taussig

2021

J Corp Accounting Finance

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The financial literature shows that, on average, larger firms earn lower returns. This study examines the relationship between market capitalization and stock returns, as well as the size growth potential of firms according to their economies of scale (size and size potential are not correlated). According to generally accepted beliefs, larger firms do earn lower returns on average. This study adds to the literature by finding that firms’ size potential (according to their economies of scale) is also negatively related to firms' average returns. This new information is significant–both statistically and economically.

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Do firms using real earnings management care about taxes? Evidence from a high book-tax conformity country

Cited by 34 publications

References 24 publications

Tax avoidance and earnings management: a neural network approach for the largest European economies

Tax avoidance and earnings management: a neural network approach for the largest European economies

Real earnings management: A review of the international literature

Size, size potential, and expected stock returns

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