Book-tax Differences Research Articles

Large Book‐Tax Differences, Bankruptcy and Firm Efficiency

ABSTRACTIn this study, I investigate the relationship between large book‐tax differences (BTDs) and the probability of firm bankruptcy and financial distress. I argue that large BTDs provide valuable information regarding corporate bankruptcy. Using the Altman Z‐score and Ohlson O‐score models, I find that firms with large negative BTDs (LNBTDs) are less likely to experience financial difficulty and bankruptcy. In contrast, firms with large positive BTDs (LPBTDs) show a higher likelihood of financial distress and bankruptcy. Additionally, the LNBTD subset, contrary to the LPBTD group, demonstrates higher firm efficiency.

Behind closed doors: unveiling earnings management in private subsidiaries of public firms

PurposeThis study examines the earnings quality of private-subsidiary firms using a large sample data from India.Design/methodology/approachThe impact of parent–subsidiary relationship on earnings quality is examined using two common proxies. Findings are robust to alternative research designs, including different earnings quality proxies, endogeneity and matching techniques.FindingsThe study finds that private firms that are subsidiaries of listed firms tend to have lesser (greater) earnings quality (manipulation). Further, the study reports that this relationship is more pronounced when the parent firm is relatively larger than the subsidiaries. The study finds no evidence that Big 4 affiliation of the parent company improves earnings quality among private subsidiaries; instead, it exacerbates earnings manipulation in some cases. Finally, the authors document that subsidiary firms use tax management, as proxied by book tax differences, to engage in income-increasing earnings manipulation.Research limitations/implicationsThis study examines how affiliation with a listed entity as a subsidiary impacts the earnings quality of private companies. Future research could investigate the financial reporting practices of both private subsidiary firms and standalone private firms, comparing them in similar or differing regulatory environments across various countries.Practical implicationsThe findings of this study will help investors, bankers, creditors and regulators to understand the financial reporting of private firms. The study calls for enhanced audit quality at the subsidiary level by making the auditor of the parent firm responsible for auditing a subsidiary, a practice that is currently absent in India.Originality/valueThe results contribute to the existing debate on how firms manage earnings using data of private firms in a large emerging market setting. Previous research has not paid enough attention to the earnings quality of private subsidiaries. The study also emphasizes the necessity for a more robust system of governance and supervision for private firms, particularly in India and generally in other countries.

Pengaruh Political Connection, Earning Management, dan Corporate Social Responsibility Terhadap Tax Avoidance dengan Corporate Governance Sebagai Pemoderasi

This study aims to determine and find empirical evidence regarding the effect of political connection, earning management on tax avoidance moderated by corporate governance. This study uses secondary data with data collection techniques using the annual reports of mining companies listed on the Indonesia Stock Exchange (IDX) for the period 2018-2022. This study used purposive sampling technique with a total sample of 100 from 20 companies. Data testing in this study used multiple linear regression analysis with panel data. Tax avoidance in this study is proxied by Book Tax Difference. The results showed that political connection and CSR variables have a positive effect on tax avoidance, earning management has a negative effect on tax avoidance, and corporate governance proxied by independent commissioners does not strengthen or weaken the relationship between political connection, earning management, and CSR on tax avoidance.

Earnings Persistence of Basic Material Companies in Terms of Book-Tax Difference, Operating Cash Flow, Accrual Component with Company Size as A Moderating Variable

Earnings Persistence of Basic Material Companies in Terms of Book-Tax Difference, Operating Cash Flow, Accrual Component with Company Size as A Moderating Variable

Book-Tax Differences during the Crisis: Does Corporate Social Responsibility Matter?

This study investigates the intricate relationship between corporate financial strategies, encapsulated by book-tax differences (BTDs), and firms’ engagement in corporate social responsibility (CSR) programs during economic crises. Using an unbalanced panel dataset drawn from financial, annual, and sustainability reports of over 97 Indonesian non-financial firms from 2017 to 2022, this study reveals that economic crises and CSR activities positively influence total BTD and permanent differences. Notably, firms strategically leverage CSR initiatives amidst crises to enhance their corporate image and manage internal challenges like aggressive tax planning. The robustness of these findings was validated through endogeneity analysis and by examining sub-samples from industries most impacted by the pandemic. In the industries least affected by the pandemic, the direct impact of CSR on BTD was found to be negative, indicating that in the general context, the CSR programs held by these industries are largely driven by normative motives. However, when specified in the crisis context, CSR serves as a strategic buffer for these industries, which reaffirms the prevalence of CSR strategic motives during Indonesia’s pandemic challenges. The findings suggest policy implications for shareholders, regulators, and policymakers to ensure CSR transparency aligns with long-term corporate values and societal impact, incentivizing genuine CSR practices amidst economic uncertainty. Despite its contributions, the study recommends future research explore different domains of CSR and validate findings across diverse contexts to enrich the understanding of CSR’s role in corporate resilience strategies.

Navigating through cyberattacks: The role of tax aggressiveness

This research investigates the impact of cyberattacks on tax aggressiveness using a difference-in-differences analysis with a matched sample. We find that firms experiencing cyberattacks are more likely to have lower cash effective tax rates and greater discretionary book-tax differences. We further show that cyberattacks have a greater impact on corporate tax aggressiveness when firms are more exposed to financial distress. Additional analyses show tax aggressiveness increases less when firms are in states with enactments of notification laws and firms with ex ante higher cybersecurity investment. Our aggregate results suggest that firms take more tax risky positions in response to greater financial distress and information asymmetry, which are attributed to the consequences of cyberattacks.

An evaluation of book-tax differences of South African firms

This paper evaluates the permanent and temporary differences between accounting profits and taxable income of South African companies using the data in the SARS-NT panel. It contributes to the establishment of a body of knowledge about book-tax differences of South African companies. Unlike previous research conducted on this topic in other countries, the characteristics of the whole population of South African companies are considered. The results describe the book-tax differences and evaluate the nature and trends in the creation or reversal of temporary differences in South Africa. Significant amounts of book-tax differences were merely described as ‘Other’ in the information that taxpayers submitted to the SARS, which hampers a user’s ability to interpret or use this information sensibly. We further observed that the SARS-NT panel did not contain sufficient information to describe book-tax differences and trends therein by industry. These findings suggest that these are areas to consider to improve the design of tax returns and the development of the SARS-NT panel that will benefit future research.

PENGARUH TAX AVOIDANCE TERHADAP NILAI PERUSAHAAN PADA PERUSAHAAN CONSUMER NON CYCLICALS SUB-SEKTOR FOOD AND BEVERAGE YANG TERDAFTAR DI BURSA EFEK INDONESIA (2019 – 2021)

This study aims to examine and analyze the effect of tax avoidance as measured by the Effective Tax Rate (ETR) and Book Tax Difference (BDT) on firm value as measured by Price Book Value (PBV). food and beverage sector listed on the Indonesia Stock Exchange (2019-2021). The sample used in this study was taken using purposive sampling method. The sample in this study is 21 companies that have been selected from a population of 62 companies in the consumer non-cyclicals sector of the food and beverage sub-sector listed on the Indonesia Stock Exchange (2019-2021). This study uses data analysis techniques, namely descriptive statistical test, multiple linear regression analysis, classical assumption test and hypothesis testing using SPSS. The results of this study indicate that tax avoidance as measured by the Effective Tax Rate and Effective Tax Rate has no effect on firm value. Based on the results of the coefficient of determination obtained, it shows that there are other variables outside of this study that can affect firm value. Keywords: Book Tax Difference, Effective Tax Rate, Firm Value, Price Book Value , Tax Avoidance

The effect of book tax differences and total asset turnover on profit growth with company size as a moderating variable

This research is entitled The Effect of Book Tax Differences and Total Asset Turnover on Profit Growth with Firm Size as a Moderating Variable. This research aims to empirically test and prove the influence of Book Tax Differences and Total Asset Turnover on Profit Growth moderated by Firm Size for Energy Sector companies listed on the Indonesia Stock Exchange in 2018-2022. This research was conducted using quantitative methods and the sampling technique used was purposive sampling. The population in this research is all energy sector companies listed on the Indonesia Stock Exchange during the 2018-2022 period. The number of companies used as research samples was 7 companies. The results of this research indicate that book tax differences and total asset turnover simultaneously have a significant effect on profit growth. Meanwhile, the result of research partially proves that only the book tax differences variable has an effect on profit growth. Firm size as a moderating variable is able to strengthen the influence of book tax differences on profit growth. However, firm size does not strengthen or weaken the influence of asset turnover on profit growth.

The Influence of Profitability, Leverage, Sales Growth, and Book Tax Differences on Corporate Tax Avoidance

This research aims to investigate the influence of profitability, leverage, sales growth, and book-tax differences on tax avoidance in the food and beverage industry. The research sample consists of companies in the food and beverage sector listed on the Indonesia Stock Exchange (IDX) during the period from 2018 to 2022. Using multiple regression analysis, this study examines the relationship between the dependent variable, which is the cash effective tax rate (CETR), and the independent variables, profitability (ROA), leverage (DER), sales growth, and book-tax differences. The results show that profitability has a negative impact on tax avoidance, leverage has a negative impact on tax avoidance, sales growth contributes positively to tax avoidance, and book-tax differences have a positive effect on tax avoidance. The influence of profitability, leverage, sales growth, and book-tax differences on tax avoidance is 37.5%, as indicated by the R-Square value of 0.375 for CETR. This indicates that there are 62.5% other factors not identified in this research that also affect tax avoidance. This research is important for policymakers as it shows that although factors such as profitability and leverage play a role in tax avoidance, there are many other factors that must also be considered. Therefore, further research is recommended to include additional variables and involve data from companies in other sectors to gain a broader perspective. This can help in formulating more effective policies in controlling tax avoidance across various industries. The findings provide significant insights into the complexity of tax avoidance and emphasize the need for a more holistic approach in tax policy enforcement.

The influence of ownership structure and political connections on tax avoidance in Indonesia

This study intends to examine the influence of ownership structure and political connections on tax avoidance using the Book Tax Differences (BTD) method. The data used is industrial entities registered on the IDX for the 2018-2022 period. By utilizing the proportional sampling method, the study sample that fulfilled the criteria was only 40 companies so 200 observational data were obtained which were used as the study sample. Panel data regression analysis is the chosen analytical method in this research which includes the Chow test, Hausman test, and hypothesis testing using Eviews as a data analytics tool. The test results imply that (i) government ownership negatively impacts tax avoidance, (ii) institutional ownership positively impacts tax avoidance, (iii) family ownership positively impacts tax avoidance, (iv) foreign ownership shows a non-significant positive impact on tax avoidance, and (v) political connections exhibit a non-significant negative impact on tax avoidance.

Pengaruh Book Tax Differences Dan Tingkat Hutang Terhadap Persistensi Laba Pada Perusahaan Sektor Perbankan Yang Terdaftar Di Bursa Efek Indonesia Periode 2019 - 2023

In the decision-making process, information about profits plays an important role. The right decision often depends on the quality of the earnings information itself. Quality profits are profits that can provide an accurate indication of future porfit estimates. Consistency in earnings indicates superior earnings quality over time. In addition, differences between recorded profits in books and profits subject to tax (book tax differences) can affect profit persistance due to differences in the recognitions of incopme and costs according to accounting standards and tax regulations. Apart from that, another factor that also has the potential to influence profit persistence is the company’s debt level. In an effort to explore the impact of book tax differences, as well as debt levels on earnings persistence, this research was conducted with a clear aim. The method in used is a careful quantitative approach. The population studied included companies in the banking sector listed on the Indonesia Stock Exchange (BEI) during the period 2019 to 2023. The sample selection procedure was carried out using SPSS 26 software to analyze the patterns that emerged. From the results of the analysis that has been carried out, it was found that there is a significant and positive influence between the difference between profit recognition in financial statements and tax imposition on the resilience of company profits. On the other hand, ther is no significant relationship between the level of company debt and earnings resilience measured in this research.

Are environmental responsibility companies socially responsible? Evidence from tax planning activities

Malaysia's Income Tax Act of 1967 does not impose penalties on environmentally friendly companies engaged in tax planning. The primary objective of this study is to examine the relationship between a company's environmental activities and the tax planning of publicly listed companies in Malaysia. A sample of 158 publicly listed companies from various industries except for financial institutions in Bursa Malaysia will be used. The annual report included non-financial data such as the environmental responsibility variable. The annual report was also used to collect the remaining data including tax planning, profitability, size and debt ratio. The multiple regression analysis indicates that companies actively participating in environmental initiatives are more inclined to adopt socially responsible tax practices to uphold their credibility among stakeholders. These companies reinforce their reputation as responsible corporate citizens committed to sustainability by demonstrating consistency between their environmental and tax practices. This study additionally revealed a positive relationship between larger companies and tax planning due to their greater access to resources and experience which enabled them to employ more advanced tax planning tactics. The utilization of permanent and temporary book tax differences (BTDs) as factors for tax planning presents a more sophisticated approach to evaluating corporate tax strategies as suggested by future research.

Audit firm tenure and corporate tax avoidance: evidence spanning COVID-19 pandemic

Purpose This study aims to examine the effect of audit firm tenure (AFT) on corporate tax avoidance (CTA) and the moderating effect of the COVID-19 pandemic. Design/methodology/approach The sample comprises 41,074 firm-year observations from 32 countries from 2015 to 2020, for which data are collected from various sources: financial data from the Refinitiv database, country corporate tax rates from the Tax Foundation, and other country-level data from the World Bank database. The authors use the book tax difference to measure CTA and multiple proxies for AFT. Findings This study finds that a longer AFT is associated with higher CTA, confirming the notion that long AFT impairs auditor independence. The findings remain robust when considering various AFT proxies, incorporating Hofstede’s cultural factors, using weighted least-squares estimation and addressing endogeneity through propensity score matching. This study also finds a non-linear relationship between extended client and auditor relationships and CTA, supporting the mandatory audit firm rotation regulation and increasing investors’ caution regarding the consequences of extended client–auditor relationships on firm behaviour. Research limitations/implications This study offers new evidence on the effect of the COVID-19 pandemic on the link between AFT and CTA and documents a non-linear relationship between AFT, which has not been addressed in prior studies. Practical implications The findings of this study have several significant practical implications. First, governments and policymakers gain insights into the consequences of extended auditor–client relationships, hence calling for a review of auditing and taxation regulations. Second, the findings provide important insights into the issue of auditor independence, especially during long engagements and crises such as COVID-19. Finally, investors and tax authorities should be more cautious about the risks of aggressive tax avoidance during crisis periods. Originality/value To the best of the authors’ knowledge, this is the first study to use a global data set to investigate the effect of AFT on CTA during the COVID-19 pandemic.

Earnings Management and Tax Minimization: Comprehensive Analysis of Book-Tax Differences in Indonesia

The research aims to investigate the relationship between earnings management strategies, specifically Accrual Earnings Management (AEM) and Real Earnings Management (REM), and abnormal book-tax differences (ABTD). A quantitative approach was employed, utilizing multiple regression models, descriptive statistics, model testing, classical assumption testing, and hypothesis testing through Eviews 12 software on a sample of 671 observations from 61 companies listed on the IDX from 2011 to 2021. The results reveal a significant positive relationship between ABTD and both AEM and REM through overproduction. However, no significant relationship was found between REM and abnormal operating cash flow. Interestingly, a strong negative correlation was discovered between tax avoidance and earnings management through discretionary spending. These findings suggest that accrual management practices are associated with higher levels of tax avoidance, while discretionary spending for earnings management tends to decrease it. The implications of this study provide insights into potential earnings management techniques that can enhance corporate efforts to reduce tax payments and maximize profits while serving as a warning for potential tax avoidance activities.

Examining determinants of book-tax difference: Insights from Malaysian multinational corporations

This research investigates the factors affecting the book-tax differences of multinational corporations (MNCs) operating in Malaysia. The sample for this study consists of MNCs with subsidiaries in tax haven countries listed on the Financial Times Stock Exchange (FTSE) Bursa Malaysia Kuala Lumpur Composite Index (KLCI) and FTSE Bursa Malaysia Mid 70 Index. About 67 MNCs were selected after eliminating 32 companies with inadequate data and one with extreme outliers. A secondary data approach was employed, utilising multiple regression analysis. Selected corporate characteristics, including deferred tax liabilities and assets, taxable income, interest coverage ratio, return on assets, and effective tax rate, were used as independent variables. Descriptive analysis revealed evidence that corporations with a high return on assets (ROA) typically benefit from very high levels of book-tax differences (BTDs). Furthermore, the results indicate that a high interest coverage ratio may partly explain the outcomes leading to an increase in differences recorded between book income and taxable income. Thus, this supports the idea that a positive relationship exists between the interest coverage ratio and BTD. Hence, this study contributes to the tax literature and informs policymakers on factors influencing BTD, especially MNCs with subsidiaries in tax haven countries. The study aims to contribute to the existing body of knowledge by offering insights into the factors influencing MNCs' strategic tax planning decisions in the Malaysian context. Policymakers should address the unfair allocation of the worldwide tax base, where a reasonable portion of the earnings made by MNCs doing business in a nation should be subject to taxation in that nation.

The IFRS adoption, corporate tax avoidance and the moderating effect of family ownership

Purpose This paper aims to examine the influence of the International Financial Reporting Standards (IFRS) adoption on corporate tax avoidance (CTA). In addition, this study aims to explore whether family ownership moderates the impact of IFRS adoption on CTA. Design/methodology/approach The authors used a sample of 1,856 firms from various countries around the world, covering the period between 2010 and 2022. To estimate the proposed econometric models, the authors applied both fixed and random effects regression methods. Findings The present findings show that IFRS adoption has a negative impact on CTA, as measured by the effective tax rate and book-tax differences. This negative impact is more pronounced in “common law” countries than in “civil law countries.” Additionally, the authors found that family ownership plays a moderating role by positively affecting the impact of IFRS adoption on CTA. Practical implications The findings have practical, regulatory and academic implications for fostering accountability and fairness in taxation. This study suggests that implementing IFRS reduces tax avoidance and emphasizes the need for firms to evaluate the implications of IFRS adoption on their tax-planning strategies. It highlights the importance of aligning financial reporting practices with international standards to enhance transparency and minimize tax avoidance opportunities. The differential impact of IFRS adoption between “common law” and “civil law” countries underscores the role of legal and regulatory frameworks. In addition, family ownership plays a significant role in shaping tax-planning strategies. From an academic perspective, this research provides a foundation for further exploration into the relationship between IFRS adoption and tax avoidance. Originality/value The existing literature has predominantly concentrated on examining the effect of IFRS adoption on CTA, and the empirical findings have been inconsistent. This study introduces a novel perspective by considering the moderating influence of family ownership in determining the impact of IFRS adoption on CTA.

The Increasing Trend in Effective Tax Rates in India: Role of Macroeconomic Factors, Tax Policy Changes and Firm Characteristics

We show that over the last two decades, India’s effective tax rates (ETRs) have increased by 7.8 percent, which contrasts with the downward trend in ETRs for US firms documented by Dyreng et al. (2017). After controlling for changes in firm characteristics, macroeconomic factors, and tax policy changes, our findings show that ETRs increased by 0.37 percent per year during the sample period. Further, we examine the proposition that public firms are more likely to engage in non-conforming tax management than private firms. We observe a stronger upward trend in ETRs among private firms than public firms, consistent with the capital market pressure hypothesis. The permanent book-tax difference is the primary driver of the ETR trend for both private and public firms. Our findings contribute to the recent debate about the trend in ETRs by undermining concerns regarding rising corporate tax avoidance and reinforcing the argument that improved tax efficiency and economies of agglomeration in countries with large domestic markets contribute to higher ETRs. JEL Codes: G38, H25, H26, H32

Tax Aggressiveness and Corporate Financialization in Brazil

Objective: This study investigates the relationship between tax aggressiveness and corporate financialization in companies listed on Brazil's B3 Stock Exchange from 2009 to 2022.
 Method: We employed a panel linear regression model, adjusting for fixed effects related to individual companies and specific years. We used metrics such as abnormal book tax differences (BTDA), effective tax rate (ETR), and Comprehensive Value-Added Tax Rate (CVATR) to measure tax aggressiveness.
 Results: Our findings show a positive correlation between tax aggressiveness and corporate financialization. Firms employing aggressive tax strategies exhibited increased financialization. For robustness, dummy variables targeting aggressively taxed firms were introduced, confirming the initial relationship. CVATR emerged as a particularly effective metric in the Brazilian context due to its complex tax structure.
 Originality/Relevance: This study is pioneering in exploring the nexus between tax aggressiveness and corporate financialization in Brazil, contributing valuable insights for local researchers, investors, policymakers, and financial analysts.
 Theoretical/Methodological Contributions: Our research introduces innovative approaches for measuring financial assets tailored to Brazil's unique market conditions. It also enriches the current body of literature by confirming CVATR as an effective metric for capturing tax aggressiveness in Brazil.

Penghindaran Pajak dan Strategi Perusahaan

Through the use of prospector tactics versus defender actions, this study seeks to show the many ways that companies engage in tax avoidance. This study uses proxies such as Effective Tax Rate (ETR) and Book Tax Difference (BTD) to examine tax avoidance behavior. The typology developed by Miles and Snow (1978) is used to define the prospector and defender methods. Within the scope of this study, agency theory is used to establish the relationship between the prospector approach and corporate defense practices and tax avoidance carried out by the corporate sector. The population of this study is manufacturing companies listed on the Indonesia Stock Exchange (IDX), and the research period 2017-2022 is the time period considered. To select the sample for this investigation, purposive sampling was used. There were 105 companies and 630 observations included in the sample selection procedure. For the purpose of evaluating each hypothesis, we used two separate sampling methods. The test findings show that while there is no difference in tax avoidance activities among firms using the book tax difference (BTD) proxy, there is variation in tax avoidance actions among firms using prospector tactics and defenses in terms of the efficacy of Effective Tax Rate (ETR). Adopt a strategy that is defensive and prospective.