Earnings Management through Effective Tax Rates: The Effects of Tax-Planning Investment and the Sarbanes-Oxley Act of 2002

2008 ◽  
Vol 25 (2) ◽  
pp. 447-471 ◽  
Author(s):  
Kirsten A. Cook ◽  
G. Ryan Huston ◽  
Thomas C. Omer
Keyword(s):  
Earnings Management ◽  
Tax Planning ◽  
Tax Rates ◽  
Effective Tax Rates ◽  
Sarbanes Oxley

Bias in Quarterly Estimates of Annual Effective Tax Rates and Earnings Management

2012 ◽  
Vol 34 (1) ◽  
pp. 31-53 ◽  
Author(s):  
Joseph Comprix ◽  
Lillian F. Mills ◽  
Andrew P. Schmidt
Keyword(s):  
Earnings Management ◽  
Earnings Forecast ◽  
Tax Rates ◽  
Effective Tax Rate ◽  
Effective Tax Rates ◽  
Tax Rate ◽  
Sarbanes Oxley ◽  
Jel Classifications

ABSTRACT We investigate whether quarterly annual effective tax rate (ETR) estimates are systematically biased in comparison to year-end actual ETRs. We find that estimated annual ETRs in the first, second, and third quarters are systematically higher than year-end ETRs. We then investigate whether firms' overstatement of quarterly ETRs creates slack that is used for earnings management. We find that quarterly ETR increases are more likely to be reversed in subsequent quarters when firms would have missed their analysts' earnings forecast absent the reversal. Finally, we show that in the years subsequent to the passage of the Sarbanes-Oxley Act (SOX), changes in the ETR continue to be associated with earnings management. These results, documenting patterns of annual ETR estimates and revisions, contribute to research about how earnings management is accomplished. JEL Classifications: H25; M41.

The Cost of Independence: Evidence from Companies' Decisions to Dismiss Audit Firms as Tax-Service Providers

2019 ◽  
Vol 34 (2) ◽  
pp. 83-107
Author(s):  
Kirsten A. Cook ◽  
Kevin Kim ◽  
Thomas C. Omer
Keyword(s):  
Service Provision ◽  
Service Providers ◽  
Tax Avoidance ◽  
Tax Planning ◽  
Tax Rates ◽  
Effective Tax Rates ◽  
Percentage Points ◽  
Sarbanes Oxley ◽  
Audit Firms ◽  
The Cost

SYNOPSIS This study examines whether companies' decisions to dismiss or substantially reduce reliance on their audit firms as tax-service providers in the wake of the Sarbanes-Oxley Act affect tax avoidance. We hypothesize that decoupling audit and tax-service provision and subsequently obtaining tax services from a new provider can result in decreased tax avoidance because the new provider lacks familiarity with a client's existing tax planning or does not have the expertise to generate new tax-avoidance opportunities. Consistent with our hypothesis, our results reveal that sample companies' book (cash) effective tax rates increased by economically significant 1.36 (1.63) percentage points in the year after terminating or substantially decreasing purchases of tax services from their audit firms, and discretionary permanent book-tax differences declined significantly. We find that decreases in tax avoidance were larger for companies whose outgoing tax-service providers were tax-specific industry experts.

A Model of Multinational Income Shifting and an Application to Tax Planning with E-Commerce

2014 ◽  
Vol 36 (2) ◽  
pp. 27-53 ◽  
Author(s):  
Kenneth J. Klassen ◽  
Stacie K. Laplante ◽  
Carla Carnaghan
Keyword(s):  
Tax Planning ◽  
Investment Model ◽  
Income Shifting ◽  
Tax Rates ◽  
Foreign Investments ◽  
Effective Tax Rates ◽  
Tax Rate ◽  
Foreign Earnings ◽  
Joint Consideration ◽  
The U.S

ABSTRACT: This manuscript develops an investment model that incorporates the joint consideration of income shifting by multinational parents to or from a foreign subsidiary and the decision to repatriate or reinvest foreign earnings. The model demonstrates that, while there is always an incentive to shift income into the U.S. from high-foreign-tax-rate subsidiaries, income shifting out of the U.S. to low-tax-rate countries occurs only under certain conditions. The model explicitly shows how the firms' required rate of return for foreign investments affects both repatriation and income shifting decisions. We show how the model can be used to refine extant research. We then apply it to a novel setting—using e-commerce for tax planning. We find firms in manufacturing industries with high levels of e-commerce have economically significant lower cash effective tax rates. This effect is magnified for firms that are less likely to have taxable repatriations. JEL Classifications: G38, H25, H32, M41.

scholarly journals PENGARUH PERENCANAAN PAJAK TERHADAP MANAJEMEN LABA YANG DIMODERASI OLEH PENURUNAN TARIF PAJAK (DISKON PAJAK)

2020 ◽  
Vol 16 (1) ◽  
pp. 85-95
Author(s):  
Oma Romantis ◽  
Kurnia Heriansyah ◽  
Soemarsono D.W ◽  
Widyaningsih Azizah
Keyword(s):  
Earnings Management ◽  
Secondary Data ◽  
Sampling Technique ◽  
Financial Statements ◽  
Total Sample ◽  
Tax Planning ◽  
Tax Rates ◽  
Panel Data Regression ◽  
Analysis Technique ◽  
Data Regression

The aims of this study to examine the effect of tax planning on earnings management which is moderated by reducing tax rates (tax discounts). The population in this study are companies listed in the 2017-2018 LQ45 index. The sampling technique in this study used a purposive sampling method with predetermined criteria, in order to obtain a total sample of 23 companies with final data totaling 46 financial statements. The type of data is secondary data obtained from www.idx.co.id. The analysis technique used in this study is panel data regression analysis and is processed using the Eviews 9.0 program. The results of this study indicate that tax planning has a significant effect on earnings management with a negative coefficient direction. A reduction in tax rates (tax discounts) weakens the effect of tax planning on earnings management.

scholarly journals Politically Connected Independent Directors and Effective Tax Rates in China

2017 ◽  
Vol 9 (1) ◽  
pp. 333 ◽  
Author(s):  
Hong Fan ◽  
Liqiang Chen
Keyword(s):  
Tax Planning ◽  
Political Connections ◽  
Independent Directors ◽  
The Political ◽  
Tax Rates ◽  
Potential Cost ◽  
Effective Tax Rates ◽  
Public Firms ◽  
The Government ◽  
Chinese Public

This paper empirically investigates politically connected independent directors in Chinese public firms using 200 state-owned enterprises (SOEs) and 200 non-SOEs from 2002–2014. We find that, in general, firms with politically connected independent directors have higher effective tax rates than firms without such directors. We argue this is because that politically connected independent directors work for the interests of the government and restrict firms’ tax planning activities. Additionally, the effect of politically connected directors on tax rates is weaker in SOEs than in non-SOEs, possibly because of the redundancy of the political ties that both independent directors and ownership bring in SOEs. Our study reveals the potential cost of political connections that prior studies have overlooked. 

scholarly journals Earnings Management, Effective Tax Rate (ETR) and Book-Tax Gap (BTG)

2018 ◽  
Vol 3 (1) ◽  
pp. 33-43
Author(s):  
Jasrial Jasrial ◽  
Susy Puspitasari ◽  
Ali Muktiyanto
Keyword(s):  
Earnings Management ◽  
Behavior Management ◽  
Banking Sector ◽  
Capital Intensity ◽  
Jel Classification ◽  
Tax Rates ◽  
Effective Tax Rate ◽  
Effective Tax Rates ◽  
Tax Rate ◽  
Tax Gap

Objective - This research examines the effect of company size, changes in out-cash flow, return on assets, conservatism, and profit levelling on earnings management. Methodology/Technique - The results of this research show that banking capital structure, capital intensity, intensity of inventory, and intensity of R & D have a significant impact on effective tax rates. Further, the results also show that, with respect to the non-banking sector, R & D expenditure contributes significantly to effective tax rates. Simultaneously, earnings management and effective tax rates, as well as other factors, also have an effect on book tax gap. Findings - This study shows that profit management has a significantly positive effect on book tax gap, and effective tax rates has a significant negative effects o book tax gap. In terms of the non-banking sector, earnings management and effective tax rate have no effect on book tax gap. Deferred tax expenses have a lower capability to detect earnings management than accrual, in both the banking and non-banking sector. Novelty - The study of management capabilities optimizes the role of book tax gap and effective tax rate for earning management. Both tax management and earnings management are closely related to behavior management in managing a company based on the agency theory. Furthermore, the study identifies a relationship between earnings management and book tax gap. Type of Paper: Empirical Keywords: Book Tax Gap; Effective Tax Rate; Earnings Management; Accrual Total; Indonesia. JEL Classification: H26, H29.

Does Schedule UTP Have Uniform Long-Run Effects on Corporate Tax Planning?

2017 ◽  
Vol 39 (2) ◽  
pp. 63-79 ◽  
Author(s):  
Kim Honaker ◽  
Divesh S. Sharma
Keyword(s):  
Tax Planning ◽  
Internal Revenue Service ◽  
Tax Rates ◽  
Corporate Tax ◽  
Difference In Differences ◽  
Effective Tax Rates ◽  
Long Run ◽  
Foreign Presence ◽  
Two Measures ◽  
Tax Benefits

ABSTRACT This study investigates the effects of the Internal Revenue Service requiring confidential Schedule UTP disclosures on corporate tax planning over the period from 2008 to 2013. We make three important observations using a difference-in-differences design and two measures of tax planning. First, we find that firms generally report significantly lower current year uncertain tax benefits in the Schedule UTP reporting era. Second, we find these firms do not exhibit a change in cash effective tax rates. Third, we observe that while aggressive tax-planning firms and firms with more foreign presence likely face greater risk with increased transparency under Schedule UTP disclosures, these firms do not exhibit a response to Schedule UTP that is significantly different from that of other firms. Collectively, our results suggest that firms appear to have uniformly adjusted their reporting of uncertain tax benefits without altering the underlying nature of their tax planning.

Examining Tax Strategy Choice

2021 ◽  
Author(s):  
Stevanie S. Neuman
Keyword(s):  
Tax Avoidance ◽  
Theoretical Work ◽  
Tax Planning ◽  
Tax Rates ◽  
Firm Characteristics ◽  
Effective Tax Rates ◽  
Tax Research ◽  
Reputational Costs ◽  
Distinct Approach ◽  
Strategy I

Most recent tax research examines the level of firms' effective tax rates (ETRs), focusing on tax avoidance. However, theoretical work and research on book-tax tradeoffs and reputational costs indicate some firms have other tax planning goals. Moreover, anecdotal evidence suggests consistent tax outcomes are important; therefore, the volatility of ETRs may be an alternative aspect of firms' tax planning. In this study, I find some firms utilize a second, distinct approach to tax strategy - maintaining low ETR volatility - by documenting systematic differences in firm characteristics associated with each tax strategy approach and a predictable shift in characteristics when firms change tax strategies. In combination, these results identify at least two distinct approaches to tax strategy. I also find firms exhibiting low ETR volatility earn significantly higher median buy-and-hold returns than firms exhibiting low ETR levels, consistent with benefits to alternative tax strategies.

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