Does Earning Management Matter for the Tax Avoidance and Investment Efficiency Nexus? Evidence from an Emerging Market

Tax avoidance is an effort to minimize the amount of tax that must be paid in a legal way and does not violate tax regulations. The phenomenon of tax avoidance can be explained from various points of view. In agency theory, there is a conflict of interest where management by taking advantage of the information it has can take actions that are not expected by the principal, one of which is tax avoidance. Tax avoidance can also be explained from the perspective of earnings management, namely that the company will minimize the tax burden through the choice of accounting methods that will affect the amount of profit reported by the company. This paper will try to review tax avoidance from the perspective of earnings management. In addition, it will also explain what schemes can be used by companies to carry out tax avoidance related to earnings management. Tax avoidance will also later be linked to the political cost hypothesis of positive accounting theory to explain examples of responses or regulations that arise as a reaction to the tax avoidance phenomenon. Knowledge of various perspectives related to tax avoidance can be a concern for various parties to respond and react to this practice. Tax avoidance undeniably affects many parties so it should be a shared responsibility so that this practice does not cause harm to many parties.

The study investigates the relationship between financing behavior, earnings management, and firm value, focusing on a sample of non-financial firms over the period 2014-2023. A sample of stratified sampling techniques, 202 firms were selected from the population. In the fixed-effects model, the study explores the impact of debt usage (leverage) on firm value, considering earnings management as a moderating variable. The findings reveal a positive and significant relationship between financing behavior and firm value, which is consistent with the Trade-Off Theory, Modigliani & Miller Theorem, Pecking Order Theory, and Agency Theory. These theories suggest that strategically using debt can enhance firm value by exploiting tax shields, improving managerial discipline, and aligning shareholder-manager interests. However, the study also finds that the moderating effect of earnings management leads to a sign reversal in the relationship between financing behavior and firm value. This relationship shows a substitution effect. This result is explained through Agency Theory, Signaling Theory, Trade-Off Theory, and Pecking Order Theory, which highlight that earnings management can either amplify or distort the true impact of financing behavior on firm value. Earnings management, when used to signal financial stability or manage financial distress, can alter investors' perceptions and affect the financial health of firms. The analysis indicates that while earnings management can be beneficial in certain contexts, excessive manipulation may undermine the positive effects of debt on firm value. The study contributes to the literature by providing empirical evidence on how financing behavior, moderated by earnings management, affects firm value, with implications for corporate financial strategies and policy-making.

The earnings management phenomenon that occurs in food and beverage sector manufacturing companies in Indonesia can influence the decisions of investors and other stakeholders in investing in shares. This research aims to determine the effect of tax planning, deferred tax assets, deferred tax expenses, and tax avoidance on earnings management in food and beverage sub sector companies listed on the Indonesia Stock Exchange for the 2018-2022 period. Agency theory is used as a foundation to explain the conflict of interest between principals and agents in company management. This research method uses a quantitative method with a causal associative approach. Secondary data collection techniques were collected through library research and financial report documentation from the website www.idx.co.id. The sample consists of 14 companies selected using purposive sampling techniques in the 2018-2022 period. Data analysis used the t-test (partial) with the SPSS version 25 statistical data processing tool. The research results showed that deferred tax expenses and tax avoidance had a significant effect on income management, while tax planning and deferred tax assets had no effect. Tax planning, deferred tax assets, deferred tax expenses and tax avoidance have a 94.4% effect on income management. In conclusion, companies tend to utilize deferred tax expenses and tax avoidance practices in earnings management. Further research is recommended to expand the scope of research and other variables that have the potential to influence earnings management.

This study aims to analyze and provide empirical evidence on the influence of profitability on tax avoidance; the influence of leverage on tax avoidance; the influence of audit quality and earnings management on tax avoidance; the moderation effect of capital intensity on the relationship between profitability and tax avoidance; the moderation effect of capital intensity on the relationship between leverage and tax avoidance; and the moderation effect of capital intensity on the relationship between audit quality and earnings management with tax avoidance. The research methodology employed is quantitative. Secondary data sources consist of financial reports from companies in the infrastructure sector listed on the Indonesia Stock Exchange during the period 2020-2022. The population comprises companies in the infrastructure sector, with a sample size of 111 selected using purposive sampling based on specified criteria. The research employs panel data regression analysis, with data processed using Eviews version 12. Partially, the study finds that ROA, leverage, and audit quality significantly influence tax avoidance, while earnings management does not significantly affect tax avoidance. Capital intensity strengthens the influence of ROA and earnings management on tax avoidance, while weakening the influence of leverage and audit quality on tax avoidance.

The objective of this research is to determine the effect of tax avoidance on firm value, using earnings management as a mediating variable. This research filled an empirical vacuum left by earlier research that used agency theory and signal theory to reexamine the effect of tax avoidance on firm value. This research was carried out to fill up an empirical gap in earlier research that sought to use agency theory and signal theory to reexamine the effect of tax avoidance on firm value. This research is innovative in that it looks at earnings management as a mediator between tax avoidance and firm value. This research makes use of secondary data and a quantitative methodology. Manufacturing enterprises registered on the Indonesia Stock Exchange (BEI) for the 2018–2022 period make up the research population. A total of 185 observations from 37 firm's in this research sample satisfied the criteria. The results of this research show that tax avoidance has an effect on firm value, earnings management has no effect on firm value, and earnings management cannot mediate the effect of tax avoidance on firm value.

This study examines the relationship between profitability, earnings management, and tax avoidance in property and real estate companies in Indonesia. Using data from 14 publicly listed companies during 2017-2022, this study utilizes multiple linear regression and mediation analysis to investigate: 1) the direct effect of profitability on tax avoidance, 2) the effect of profitability on earnings management, 3) the impact of earnings management on tax avoidance, and 4) the mediating role of earnings management. The results showed a significant positive relationship between the three variables. Higher profitability is associated with increased earnings management and tax avoidance. Earnings management is also positively correlated with tax avoidance. Furthermore, earnings management partially mediates the relationship between profitability and tax avoidance. These findings contribute to the literature on corporate finance practices by shedding light on the complex dynamics between financial performance, reporting strategies, and tax planning. The research highlights the need forincreased regulatory oversight and strong corporate governance mechanisms to ensure financial reporting integrity and tax compliance. The study also provides valuable insights for policymakers, investors, and other stakeholders in understanding and addressing aggressive financial manipulation and tax avoidance strategies in the corporate sector.

Earnings management is a manager's behavior in managing reported earnings by using methods/techniques to achieve personal and corporate interests. Where earnings management can be viewed based on two perspectives, namely the opportunistic perspective and Messod (2001). According to Watts and Zimmerman (1986), one of the hypotheses of managers in earnings management is related to the political cost hypothesis. One of the methods that can be used by management is tax avoidance in the practice of earnings management.
 Research evidence shows that first, there is no difference in the pattern of tax avoidance before and during the Covid-19 pandemic, tax avoidance methods are still used as a tool to manage corporate earnings; second, the corporate governance mechanism through majority share ownership by the government is better able to suppress tax avoidance in earnings management; third, to encourage more transparent and ethical business management in companies especially in government-owned companies, voluntary disclosure (CSR) can reduce tax avoidance and reduce earnings management; fourth, the existence of political connections that the company has provides an opportunity for managers to take advantage of information about taxation and use it in earnings management behavior.

The research aims at examining the role of earnings management in relation between tax avoidance and investor reaction in Indonesia. This study investigated how the earnings management as a basis of management on tax avoidance has an effect for investor reaction. The population of this research covers the entire corporate registered in The Indonesian Stock Exchange from 2009 to 2012. The sample of this research refer to the manufacturing company which was assumed avoiding tax. Total samples are 80 companies. Purposive sampling method is used in this research and Structural Equation Modeling (SEM) with program of WarpPLS 4.0 version is utilized in analyzing and testing hypothesis. This research is also offering a new measurement for tax avoidance, is tax avoidance rate (TAR). Tax avoidance rate (TAR) can be used to knows how much tax avoidance conducted by company. The findings showed that tax avoidance have direct and indirect effect to the investor reaction. Earnings management mediates the relation of tax avoidance and investor reaction. This result evinced that tax avoidance and earnings management are as signal for investor who will influence their investment decision. Investor can assess whether tax avoidance conducted by company for company's interest or as the tool in doing the earnings management.

The agency relationship between company owners and company managers raises potential problems between the two due to conflicts of interest. Several issues that reflect agency problems include tax avoidance and earnings management, the aim of which is to provide profits for managers. One tool to prevent tax avoidance and earnings management is good corporate governance. This research aims to analyze the influence of corporate governance in reducing tax avoidance and earnings management. The research method used is descriptive qualitative research approach systematic literature review (SLR) uses framework PRISMA. The references used come from articles published from 2014 to 2024 with a focus on companies in Indonesia. Based on the results of the literature review, there is a tendency that corporate governance can reduce the incidence of tax avoidance and earnings management. However, there are several studies that present the opposite results. This research aims to enhance our understanding of governance studies concerning tax avoidance and earnings management. In addition, we hope this research will highlight the significance of implementing good corporate governance for companies.

This study aims to examine the variables that are determinants of earnings management in manufacturing companies both direct effect and indirect effect on the IDX. The type of this study is a quantitative. The population of the study is manufacturing companies listed on the IDX in 2015-2017. The study used data obtained from Purposive sampling method of the company's financial statements accessed through www.idx.com (N=81). Data analysed by Structural Equation Modeling (SEM) using AMOS program. The study found that firm size directly had no significant effect on tax avoidance, sales growth directly had a significant effect on tax avoidance, tax avoidance directly had a significant effect on earnings management. Firm size directly had no effect on earnings management, sales growth directly had a significant effect on earnings management. Firm size does not affect earnings management through tax avoidance. While Sales growth has a significant effect on earnings management through tax avoidance. The implications of this study are: provide input for company practitioners to be more careful in conducting earnings management because they should not be considered as an effort to Tax avoidance by the relevant agencies. This study can help investors in analyzing financial statements in order to understand the practice of earnings management conducted by companies with the aim of tax avoidance that will have a long impact on the continuity of the company. This study provides information for agencies involved in determining policies in the capital market.

This study examines the impact of CEO narcissism, firm performance, and company growth on tax avoidance in listed companies on the stock exchanges of Iraq and Oman from 2015 to 2022, with a focus on the role of earnings management. Using a sample of listed firms from both countries, we analyze the relationships between CEO narcissism, firm performance metrics, company growth indicators, earnings management practices, and tax avoidance strategies. Our findings indicate that CEO narcissism has a significant positive effect on tax avoidance in both Iraq and Oman. Additionally, firm performance is positively associated with tax avoidance in both countries. Furthermore, earnings management strengthens the relationship between CEO narcissism and tax avoidance in Iraq. However, earnings management does not moderate the relationship between firm performance and tax avoidance in either country. These results contribute to the understanding of corporate tax behaviors and highlight the importance of considering CEO characteristics and earnings management practices in tax planning strategies. The findings have implications for corporate governance, regulatory oversight, and future research in the field of tax avoidance and earnings management.

PurposeThis paper aims to verify the effect of corporate social responsibility (CSR) on Chinese listed firms’ earnings management and tax avoidance. Specifically, this study investigates whether government-guided CSR implementation indeed drives firms to behave in a responsible manner by constraining earnings management and tax avoidance.Design/methodology/approachThe paper analyses a sample of Chinese listed companies that are confronted with the unique situation of CSR being developed at a rapid pace by government-led policy and regulation. The study further investigates whether the effect of CSR on earnings management and tax avoidance is different for state-owned and private enterprises by partitioning the sample into these two subgroups.FindingsThe findings of this study show that government-guided CSR could be effective in reducing the firms’ earnings management and tax avoidance, even though the effect is limited to state-owned enterprises.Originality/valueThis paper provides new evidence on the relation of CSR with earnings management and tax avoidance in the Chinese context and sheds light on the importance of differentiating between the state-owned and private enterprises when studying the corporate behaviors of Chinese firms.

This study aims to determine the effect of related party transactions, financial distress, and firm size on tax avoidance with earnings management as an intervening variable. The population in this study is manufacturing companies listed on the Indonesia Stock Exchange from 2018 - 2020, with a total of 168 companies. The sampling method used is a purposive sampling; 51 companies in the manufacturing sector are selected as samples. The analysis technique used is multiple linear regression and path analysis tests with the Eviews analysis tool. The results of this study are that related party transactions and financial distress have a negative effect on tax avoidance, while firm size has no effect on tax avoidance. Related party transactions and financial distress have no effect on earnings management, while firm size has a positive effect on earnings management. After being mediated by earnings management, firm size has a positive effect on tax avoidance, while related party transactions and financial distress have no effect on tax avoidance.

Tax avoidance is an act or effort taken by the taxpayer to reduce the amount of tax payable in a legal way, namely by utilizing the gray area contained in the applicable tax laws and regulations. In theory, tax avoidance is allowed only that includes acceptable tax avoidance. But the fact is, a lot of tax avoidance that occurs is unacceptable tax avoidance which can be detrimental to the state. The purpose of this research was to examine the influence of thin capitalization, capital intensity, and earnings management on tax avoidance with tax havens country as moderators. The population of this research is multinational companies that were listed on the Indonesia Stock Exchange (IDX) in 2017-2021. The sampling technique used was the purposive sampling of 29 companies with a total sample of 145 samples selected based on predetermined criteria. The data analysis technique in this study used multiple linear regression analysis with SPSS Statistics V22.0. The results showed that thin capitalization influenced tax avoidance, capital intensity influenced tax avoidance, and earnings management influenced tax avoidance. Other results show that tax havens country moderates the influence of thin capitalization and earnings management on tax avoidance, but tax havens country does not moderate the influence of capital intensity on tax avoidance.

This research discusses the influence of tax planning, deferred tax assets, and tax avoidance on earnings management, focusing on companies in the food and beverage sub-sector. The purpose of this study is to determine the simultaneous impact of tax planning, deferred tax assets, and tax avoidance on earnings management, as well as the partial influence of tax planning on earnings management, deferred tax assets on earnings management, and tax avoidance on earnings management. The chosen method for this study is a quantitative descriptive research method. The data used is secondary data, collected using documentation techniques. The sampling technique was conducted using purposive sampling based on criteria determined by the researcher. The data obtained were then analyzed using descriptive statistical analysis methods, panel data models, panel data regression model selection tests, classical assumption tests, panel data regression tests, and hypothesis tests. The research concludes that, simultaneously, tax planning, deferred tax assets, and tax avoidance influence earnings management. Partial testing concludes that tax planning does not affect earnings management, deferred tax assets significantly affect earnings management, and tax avoidance does not affect earnings management.