How Do Italian Private Companies Respond to a Reduction in the Corporate Standard Tax Rate? A Focus on the Ownership Gender Diversity Effect

Simone Poli

doi:10.5296/ijafr.v9i4.15692

Abstract

Cuts in the corporate standard tax rate can encourage companies to manage their earnings in order to save on taxes by shifting earnings from the fiscal year in which it is higher to the fiscal year in which it is lower. This phenomenon has been very little explored for private companies, despite their importance in many countries around the world. Moreover, no previous study has verified whether certain features of private companies’ ownership structure may affect the aforementioned phenomenon. In order to contribute to filling this knowledge gap, this study aims to verify whether the gender of the owners has any impact. Focusing on Italian private companies, this study shows that they responded to the cut in the corporate standard tax rate that came into force in fiscal year 2017 by putting in place earnings management practices that shifted profits from FY 2016 to FY 2017. At the same time, it shows that the gender of owners has not had any impact on the phenomenon; in other words, Italian female-owned and male-owned private companies do not behave in statistically different ways.

Highlights

Cuts in the corporate standard tax rate can encourage companies to manage their earnings in order to save on taxes by shifting earnings from the fiscal year in which it is higher to the fiscal year in which it is lower
Focusing on Italian private companies, this study shows that they responded to the cut in the corporate standard tax rate that came into force in fiscal year 2017 by putting in place earnings management practices that shifted profits from FY 2016 to FY 2017
It shows that the gender of owners has not had any impact on the phenomenon; in other words, Italian female-owned and male-owned private companies do not behave in statistically different ways

Summary

Introduction

Cuts in the corporate standard tax rate can encourage companies to manage their earnings in order to save on taxes by shifting earnings from the fiscal year in which it is higher to the fiscal year in which it is lower (e.g. Scholes et al, 1992; Klassen et al, 1993; Guenther, 1994; Maydew, 1997; Lopez et al, 1998; Roubi & Richardson, 1998; Lin et al, 2012; Watrin et al, 2012; Lin et al, 2014; Mattei, 2014a; Mattei, 2014b; Sundvik, 2016; Höglund & Sundvik, 2016; Sundvik, 2017a; Sundvik, 2017b; Sundvik, 2017c; Dobbins et al, 2018; Haga et al, 2019). In a recent review of the literature, Sundvik (2017a) found that this phenomenon has been underexplored in private companies, despite their importance in many countries around the world. In order to contribute to filling this knowledge gap, this study aims to verify whether the gender of the owners has any impact on the phenomenon. The hypothesis that the gender of company owners can have an impact on the phenomenon under examination is suggested by the extant literature. Since earnings management practices can be perceived as risky and unethical (e.g., Healy & Wahlen, 1999; Roychowdhury, 2006) and since females have been found to be more risk averse and ethical than their male counterparts, the spread and intensity of the phenomenon under consideration may be influenced by gender

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