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

Mills, Lillian F.; Newberry, Kaye J.

doi:10.2308/jata.2001.23.1.1

Cited by 399 publications

(147 citation statements)

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“…In contrast, Mills and Newberry (2001), Joos, Pratt and Young (2003), Phillips, Pincus and Rego (2003) and Phillips, Pincus, Rego and Wan (2004) focus on nonconforming upward earnings management, which increases financial accounting income with no current tax consequences.…”

Section: Prior Researchmentioning

confidence: 99%

Listed companies’ income tax planning and earnings management: Based on China’s capital market

Nan-wei

Cao

Lu-lu

2015

JIEM

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Abstract:Purpose: The Ministry of Finance issued the new China accounting standards on February 15, 2006, which requires the listed companies to use the balance sheet liability method for the income tax accounting. Thus, it gives us an opportunity to investigate the earnings management of listed companies from the perspective of income tax. Under the balance sheet liability method, our researches just try to investigate the relationship between the listed companies' income tax planning and earnings management.Design/methodology/approach: Our research approach combines theoretical analysis and empirical analysis. This paper first makes a deep theoretical analysis on the listed companies' choice between pretax earnings management activities and earnings management activities, and then we exemplify our theory. Next, we come up with two hypotheses based on the theoretical analysis, build up a restatement model and conduct the empirical examination. The empirical analysis employs the method of descriptive statistics and logistic regression.Findings: When engaging in earnings management, listed companies will trade off conforming and nonconforming earnings management from the perspective of income tax cost. We find that managers' motivations and purposes will influence the choice. When the company has motivations to turn losses into gains and has motivations to avoid penalty cost -417-Journal of Industrial Engineering and Management -http://dx.doi.org/10.3926/jiem.1310 associated with fraud being found, the company prefers to employ more conforming earnings management strategies. Research limitations/implications:The limitation in our research is as follows. First, we mainly focus on the conforming and nonconforming earnings management when the listed companies restate their financial statements. However after the issue of CAS2006, many listed companies still not disclose income tax account, which restrict our sample. Second, without the acquisition of private companies' data, our empirical results may have some errors. We will solve these problems in our future study.

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Section: Prior Researchmentioning

confidence: 99%

Listed companies’ income tax planning and earnings management: Based on China’s capital market

Nan-wei

Cao

Lu-lu

2015

JIEM

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“…Subsequent studies (e.g., Newberry, 2001 andCloyd et al, 1996) focus on the book-tax tradeoffs that are associated with various tax avoidance opportunities (i.e., some tax avoidance strategies reduce both taxable and financial statement income, whereas others affect only taxable income). Although this prior research is useful, it provides little insight into why some firms engage in more tax planning than others (Shackelford and Shevlin, 2001).…”

Section: Prior Literaturementioning

confidence: 99%

Corporate governance, incentives, and tax avoidance

Armstrong

Blouin

Jagolinzer³

et al. 2015

Journal of Accounting and Economics

735

242

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We examine the link between corporate governance, managerial incentives, and corporate tax avoidance. Similar to other investment opportunities that involve risky expected cash flows, unresolved agency problems may lead managers to engage in more or less corporate tax avoidance than shareholders would otherwise prefer. Consistent with the mixed results reported in prior studies, we find no relation between various corporate governance mechanisms and tax avoidance at the conditional mean and median of the tax avoidance distribution. However, using quantile regression, we find a positive relation between board independence and financial sophistication for low levels of tax avoidance, but a negative relation for high levels of tax avoidance. These results indicate that these governance attributes have a stronger relation with more extreme levels of tax avoidance, which are more likely to be symptomatic of over-and under-investment by managers. Abstract: We examine the link between corporate governance, managerial incentives, and corporate tax avoidance. Similar to other investment opportunities that involve risky expected cash flows, unresolved agency problems may lead managers to engage in more or less corporate tax avoidance than shareholders would otherwise prefer. Consistent with the mixed results reported in prior studies, we find no relation between various corporate governance mechanisms and tax avoidance at the conditional mean and median of the tax avoidance distribution. However, using quantile regression, we find a positive relation between board independence and financial sophistication for low levels of tax avoidance, but a negative relation for high levels of tax avoidance. These results indicate that these governance attributes have a stronger relation with more extreme levels of tax avoidance, which are more likely to be symptomatic of over-and under-investment by managers.JEL: G34, H25, H26, K34, M41

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“…By investigating the association between temporary BTD and firm life cycle, Drake (2012) find also that life cycle capture the relation between BTD and earnings persistence and concludes that this relation is more complicated. Mills and Newberry (2001) focus on the relation between BTD and managers 'incentives to overstate earnings. Phillips et al (2003) examine the association between BTD and various measures of earnings management.…”

Section: The Book-tax Difference Debatementioning

confidence: 99%

“…Therefore, temporary differences (generally identified by the deferred tax expense) are the essential component of the BTD which can provide information about earnings quality (Philips et al, 2003;Mills, 1998;Hanlon, 2005;Hanlon & Krishnan, 2006;Guenther, 2011). Further studies have used the total differences as a measure of BTD (Mills & Newberry, 2001;Lev & Nissim, 2004;Weber, 2009;Dhaliwal et al, 2009;Manzon & Plesko, 2002) (Note 4). Some other studies have analyzed the DCF through its decompositions into normal and abnormal differences (Tang & Firth, 2011;Tang & Firth, 2012;Formigoni et al, 2009).…”

Section: Dependent Variable Measurement-abnormal Book-tax Differencesmentioning

confidence: 99%

“…Assessing the BTD is important because BTD can be used as an attribute of financial reporting quality and can contain incremental informations for investors and users of companies' financial reports. Recent research focus on either BTD are associated with earnings management (Joos et al, 2000;Mills & Newberry, 2001;Donohoe & McGill, 2010;Comprix et al, 2011) or tax planning (Wilson, 2009). Some studies attribute the BTD to both EM and TM (Tang & Firth, 2011;Chen et al, 2012).…”

Section: Introductionmentioning

confidence: 99%

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

Dridi¹,

Boubaker²

2015

IJBM

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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.

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

Cited by 399 publications

References 0 publications

Listed companies’ income tax planning and earnings management: Based on China’s capital market

Listed companies’ income tax planning and earnings management: Based on China’s capital market

Corporate governance, incentives, and tax avoidance

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

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