Effects of Earnings Management to Corporate Tax Avoidance

Abstract

Among vital expenses of the company, that affect profits and shareholders value, is corporate income tax (CIT). And among ways to maximize market value, firm management consider to intervene firm profits to save tax costs to cause after tax return rate to go up to attract investment. The study purpose is analyzing effects from earnings management on tax avoidance level of listed firms on Vietnam stock market. By using multivariate regression analysis, the study results show us that when earnings management higher, the level of corporate income tax avoidance will be higher. One of the earnings management goals is to increase the rate of return after taxes in order to maximize shareholder value and attract investment. Therefore, managers will focus on adjusting profits to the most profitable and maximum income tax saving. This research studies the effect of earnings management to corporate income tax avoidance in Vietnam. To examine this relationship, we examined the impact of discretionary accruals on the effective tax rate with a sample of 496 firm – years in the period of 2016-2018. The research results find a positive relationship between earnings management and corporate income tax avoidance, i.e., the more profit-adjusting behaviors companies have through discretionary actuals, the lower the effective tax rate will be. LAst but not least, impact factors on income tax include inventory and capital intensity and firm size whereas non0imapct factors include external auditors type and leverage.