The Difference between the Accounting Result and Taxable Income in Detecting Earnings Management and Tax Management: The Tunisian Case

Abstract

In this study, we examine empirically whether the gap between the pre-tax income and the taxable income predicts simultaneously earnings management and tax management. Prior researches have begun to estimate several indictors of earnings quality. We extends this works by investigating whether the book-tax differences (BTD) provides information about managerial discretion. BTD can be used as an attribute of information quality and can contain incremental information for investors and users of financial reports of companies We compose a sample of 21 listed Tunisian firms over the 2003-2012 periods, we apply a statistical methodology implementing a linear panel regression. We develop a model in which we estimate abnormal BTD. All earnings and tax management activities are captures by our abnormal BTD indicator (ABTD). From this regression we are going to test the effect of the variables of the earnings and tax management on the ABTD variable. We find, as expected, a significant association between BTD and manager discretion proxies. Our results indicate that BTD contains a predictive power over the earnings and tax management. We find that Tunisian companies are concerned about tax reducing rather than improved information quality and increasing the financial result.

Relationship between earnings management and abnormal book-tax differences in Brazil

“…Due to the different results revealed by the previous studies, this study aims to draw closer with more robustness to the research developed by Dridi and Boubaker (2015) and Tang and Firth (2011) and, thus, highlight the possible causes of the differences between the results.…”

“…These authors identified significant relationships between variables that represent proxies for (accounting and tax) EM and ABTD. Dridi and Boubaker (2015) and Tang and Firth (2011) carried out a study regarding ABTD and EM and identified a significant relationship between the variables, determining that the companies studied manage their earnings to reduce taxes.…”

The Influence of Earnings Management and Tax Planning on Firm Value with Audit Quality as Moderating Variable

“…The tax expense is one of can reduce the companies' profit and dividend for investors. Because of this, the management will do tax planning to minimize the tax expense so that company profits high (Rogers-Glabush, 2015;Alduneibat et al, 2017;Dridi & Boubaker, 2015;Hu et al, 2015;Hanlon & Heitzman 2010 ) and the firm value in the public still good (Lestari & Ward, 2015;Ylonen & Laine, 2015). However, with the enactment of expired tax collection in Indonesia for 5 years, companies in Indonesia must be prepared to encounter of tax audit and short-term tax planning will increase the tax expense from tax penalty received by company.…”

Corporate Governance and Book-Tax Differences: Tunisian Evidence

“…Following prior studies (Tang & Firth, 2011;Tang & Firth, 2012;Formigoni et al, 2009, Dridi & Boubaker, 2015, we separate BTD into two components, normal and abnormal differences. The reason is that abnormal differences are more informative about managerial manipulations because it represents the part which is not explained by the differences between accounting and tax treatment.…”

“…The specific characteristic of Tunisian company is that the institutional environment and the agency conflict differ from those in Anglo-Saxon countries. Tunisia is characterized by a large number of family firms, ownership concentration, the dominance of financial institutions, the authority of the state and less developed financial market (Dridi & Boubaker, 2015;Ben Amar & Abaoub, 2010).…”