Earnings management induced by tax planning: The case of Portuguese private firms

Marques, Mário; Rodrigues, Lúcia Lima; Craig, Russell

doi:10.1016/j.intaccaudtax.2011.06.003

Cited by 45 publications

(58 citation statements)

References 18 publications

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“…In countries like Italy, characterized by a close alignment between accounting and tax rules, tax incentives greatly impact on private companies' earnings management practices (e.g. Coppens & Peek, 2005;Goncharov & Zimmermann, 2006;Marques et al, 2011;Poli, 2013b). With regard to the findings referring to financial incentives, Poli (2013b) has posited that it could depend on the fact that Italian banks do not attribute great importance to the financial information provided by Italian private companies' financial statements.…”

Section: Findings and Discussionmentioning

confidence: 99%

“…Beaver, McNichols, & Nelson, 2007;Dechow, Richardson, & Tuna, 2003;Durtschi & Easton, 2005, 2009Holland, 2004;Lahr, 2014;McNichols, 2003), it has been widely used to detect the presence of earnings management practices (e.g. Baber & Kang, 2002;Beatty, Ke, & Petroni, 2002;Brown & Caylor, 2004;Burgstahler & Dichev, 1997;Collins, Pincus, & Xie, 1999;Coppens & Peek, 2005;Daske, Gebhardt, & McLeay, 2006;Degeorge, Patel, & Zeckhauser, 1999;Easton, 1999;Gore, Pope, & Singh, 2007;Hamdi & Zarai, 2012;Hayn, 1995;Holland & Ramsay, 2003;Jacob & Jorgensen, 2007;Kerstein & Rai, 2007;Marques et al, 2011;Moreira, 2006;Phillips, Pincus, Rego, & Wan, 2004;Poli, 2013aPoli, , 2013bRevsine, Collins, Johnson, & Mittelstaedt, 2009). According to this approach, we assume that a company practices EM if the reported earnings of a fiscal year, scaled to total assets of the previous fiscal year, assumes a value between 0 and 0.005 (0 is included, 0.005 is excluded) and that a company practices ECM if the reported earnings change of a fiscal year (determined as the difference between the reported earnings of a fiscal year and the reported earnings of the previous fiscal year), scaled to total assets of the second previous fiscal year, assumes a value between -0.0025 and 0.0025 (-0.0025 is included, 0.0025 is excluded).…”

Section: Dependent Variables-measures Of Earnings Managementmentioning

confidence: 99%

“…Marques et al, 2011;Poli, 2013b). They have found that EM practices are observable among the companies that have a higher actual tax rate (ATR) and not among companies that have a lower ATR (e.g.…”

Section: Control Variablesmentioning

confidence: 99%

“…They have found that EM practices are observable among the companies that have a higher actual tax rate (ATR) and not among companies that have a lower ATR (e.g. Marques et al, 2011;Poli, 2013b). According to them, to control for tax incentives, we use the ATR variable.…”

Section: Control Variablesmentioning

confidence: 99%

“…The frequency distribution of earnings, therefore, displays the typical characteristics of earnings management practices aiming to minimize earnings (e.g. Coppens & Peek, 2005;Marques et al, 2011;Poli, 2013aPoli, , 2013b. The verification of the statistical significance of the two discontinuities, using the test statistics suggested by Burgstahler and Dichev (1997) and Garrod, Pirkovic, and Valentincic (2006), for which the data is not shown, has revealed that they are statistically significant at a level of 1%.…”

Section: Sample Selection and Datamentioning

confidence: 99%

See 4 more Smart Citations

Do Ownership Structure Characteristics Affect Italian Private Companies’ Propensity to Engage in the Practices of “Earnings Minimization” and “Earnings Change Minimization”?

Poli¹

2015

IJEF

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The study aims to verify whether and how ownership structure (with specific reference to ownership concentration and identity) affects Italian private (unlisted) companies' propensity to engage in practices of "earnings minimization" and "earnings change minimization". Companies that engage in these practices have been identified following the "earnings frequency distribution" approach suggested by Burgstahler and Dichev (1997). The influence of ownership structure, together with that of a set of control variables mainly aiming to control for tax, financial, and size incentives, is tested by logit analysis models. Ownership concentration does not have a statistically significant influence. Conversely, institutional, state, and foreign ownership has a statistically significant influence. In the first and third cases, the influence is negative, in the second case the influence is positive. The study extends the current knowledge on the relationship between aspects of corporate governance and earnings management practices in private companies, especially SMEs. It also expands what is known about the earnings management practices undertaken by companies in countries, like Italy, in which a code law system is in force and accounting and tax systems are closely aligned.

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Section: Findings and Discussionmentioning

confidence: 99%

Section: Dependent Variables-measures Of Earnings Managementmentioning

confidence: 99%

Section: Control Variablesmentioning

confidence: 99%

Section: Control Variablesmentioning

confidence: 99%

Section: Sample Selection and Datamentioning

confidence: 99%

See 3 more Smart Citations

Do Ownership Structure Characteristics Affect Italian Private Companies’ Propensity to Engage in the Practices of “Earnings Minimization” and “Earnings Change Minimization”?

Poli¹

2015

IJEF

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Management Behavior and Profit Smoothing: Implications of the Study

Magni

2019

New Perspectives of Profit Smoothing

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The Effects of Immigration on Labour Tax Avoidance: An Empirical Spatial Analysis

et al. 2019

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We investigate whether the geographic concentration of non-EU immigrants in the various Italian provinces affects labour tax avoidance (LTAV) practices adopted by firms located in the same provinces, as well as in the neighbouring provinces, and operating in construction and agriculture industries that mostly employ immigrants in Italy. For this purpose, we develop a LTAV proxy based on the financial accounting information of a sample of 993,606 firm-years disseminated throughout 108 Italian provinces over the period 2008-2016.Our results, based on a Spatial Durbin Model panel regression, reveal a statistically significant positive association between non-EU immigrant concentration and LTAV at province-level as well as the presence of spillover effects among neighbouring provinces. Our findings are robust to several additional analyses, including instrumental variable estimations to account for possible endogeneity.Our study provides empirical support to previous structuralist or marginalization theories holding that socio-economically marginalized groups, such as non-EU immigrants, are more likely to be involved in undeclared work and/or other labour exploitation practices, which could underlie our LTAV outcomes. Furthermore, it supports the need for tax authorities to strengthen controls and labour inspections, especially in those contexts where non-EU immigrants are mostly employed. On the other hand, a greater social integration and recognition of rights of immigrants may help to alleviate their situation of weakness that makes them more vulnerable to labour exploitation practices. Finally, effectively tackling LTAV, associated with the underemployment of immigrants, may prevent its negative effects for society arising from the reduction of public resources to sustain the social welfare and finance public goods and services.

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Earnings management induced by tax planning: The case of Portuguese private firms

Cited by 45 publications

References 18 publications

Do Ownership Structure Characteristics Affect Italian Private Companies’ Propensity to Engage in the Practices of “Earnings Minimization” and “Earnings Change Minimization”?

Do Ownership Structure Characteristics Affect Italian Private Companies’ Propensity to Engage in the Practices of “Earnings Minimization” and “Earnings Change Minimization”?

Management Behavior and Profit Smoothing: Implications of the Study

The Effects of Immigration on Labour Tax Avoidance: An Empirical Spatial Analysis

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