Cash Effective Tax Rate Research Articles

The impact of asset specificity on corporate tax avoidance: Do financial constraints and product market power matter?

Our findings reveal that asset specificity significantly enhances corporate tax avoidance, with firms exhibiting lower cash effective tax rates. Firms with higher asset specificity also engage in more aggressive tax avoidance strategies, including tax dodging and long-term tax planning. Additionally, our analysis indicates that the positive impact of asset specificity on tax avoidance is less pronounced in firms with lower ESG performance but is more pronounced in those facing negative demand shocks or operating during periods of economic policy uncertainty. We also find that financial constraints and product market power mediate the relationship between asset specificity and tax avoidance, with financial constraints serving as the dominant economic channel. These findings offer new insights into the factors driving corporate tax avoidance and highlight the complex interplay between asset specificity, financial constraints, product market power, and tax planning strategies.

The Impact of Cryptocurrency Exposure on Corporate Tax Avoidance Among US Listed Companies

This study examined the association between corporate cryptocurrency activities and tax avoidance outcomes, utilizing data from US public firms covering the period from 2015 to 2023. Financial data were sourced from Compustat, while details regarding cryptocurrency activities were manually extracted from 10-K and 10-Q filings. Our analysis employed a fixed-effects regression model to examine the impact of these activities on cash effective tax rates (ETR). The findings indicate that firms engaged in cryptocurrency activities tend to have a lower ETR compared with those without such involvement. Notably, this effect was predominantly observed in companies directly engaged in cryptocurrency activities, such as accepting cryptocurrency as a payment method or actively trading cryptocurrency on an exchange platform. In contrast, firms involved in crypto mining or initial coin offerings did not exhibit a similar association. Our findings offer significant regulatory insights for governance bodies concerned with the implications of corporate cryptocurrency activities on tax strategies.

Tax Avoidance in F&B Companies in Relation Among Leverage, Sales Growth, and Firm Size with Profitability as Mediating

The objective of this research is to examine how leverage, sales growth, and firm size have an effect on tax avoidance through profitability as mediating in food and beverage companies listed on the Indonesia Stock Exchange (IDX). The research utilizes three independent variables: leverage measured by Debt to Asset Ratio (DAR); sales growth measured by the change in current sales relative to previous sales; and firm size measured by the natural logarithm of total assets. The mediating variable is profitability, measured by Return on Assets (ROA), while the dependent variable is tax avoidance, measured by Cash Effective Tax Rate (CETR). The population of this research is all of the food and beverage companies listed on the Indonesia Stock Exchange (IDX) from 2020 to 2023. The purposive sampling method was used in determining the sample and there were 21 companies obtained with a total research sample of 84 obtained over four years. The results of this research show that leverage and sales growth partially have a significant effect on profitability, while firm size partially has no significant effect on profitability. Leverage, sales growth, firm size and profitability partially have no significant effect on tax avoidance.

FINANCIAL DISTRESS DAN TAX AVOIDANCE: POTRET PERUSAHAAN MANUFAKTUR DALAM ANALISIS DESKRIPTIF KUANTITATIF

Tax avoidance can be driven by several factors, including declining financial conditions. Based on some cases that have occurred in companies in Indonesia, the research questions for this study are: 1) Do companies experiencing financial difficulties tend to engage in tax avoidance? 2) Do companies not experiencing financial difficulties also tend to engage in tax avoidance? The purpose of this study is to investigate and describe the tendency of tax avoidance based on the financial conditions of companies. The sample for this study includes manufacturing companies in the sub-sectors of Household Goods, Leisure Goods, and Tobacco listed on the Indonesia Stock Exchange for the period 2020-2022. The sample selection was done using purposive sampling, resulting in 33 samples from 11 companies that met specific criteria. This research is a descriptive quantitative study, describing financial distress using the Springate S-Score method and tax avoidance using the Cash Effective Tax Rate. The scores and ratios were then analyzed using Microsoft Excel Office 2021. The results of this study indicate that companies experiencing financial difficulties tend to engage in tax avoidance practices. There are also companies that are not experiencing financial difficulties but are still indicated to be engaging in tax avoidance practices. Additionally, it was found that some companies categorized as experiencing financial difficulties do not engage in tax avoidance practices

The Economic Policy Uncertainty on Firms Behavior

The study examines how economic policy uncertainty could affect firm behavior. It discusses how changes in economic policies can affect investment decisions, capital expenditure, innovation, and green behavior of firms. This topic focuses on analyzing the relationship between corporate financial decisions and consumer spending under policy uncertainty. It also explores the relationship between policy uncertainty and firms' overseas investments, environmental performance, governance practices, tax avoidance strategies, and cash-effective tax rates. The findings reveal the importance of cash holdings in alleviating the effects of policy uncertainty on firm activities and highlight the relationship between policy uncertainty and firms' carbon emission intensity. Overall, the study provides insights into the various aspects of corporate decision-making affected by economic policy uncertainty.

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.

The Effect Of Political Connections, Transfer Pricing, and Firm Size On Tax Avoidance Practices

Several companies engage in tax avoidance, a strategy aimed at circumventing tax expenses. Within this study, tax avoidance is quantified through Cash ETR (Effective Tax Rate). The objective is to empirically elucidate the impact of political affiliations, transfer pricing, and company size on tax avoidance among mining firms listed on the Indonesia Stock Exchange (IDX) from 2018 to 2021. Employing a purposive sampling method, 113 samples were meticulously chosen to represent the population. Utilizing multiple linear regression analysis, the research revealed that transfer pricing significantly influences tax avoidance practices, while political connections and company size do not demonstrate such an effect.

Tax Crime Risk in Mining Sector Companies : An Examination of Transfer Pricing Analysis and Capital Intensity

This research investigates how capital intensity and transfer pricing may affect the likelihood of tax offenses in the mining industry. The report uses a sample of mining businesses listed from 2018 to 2022 on the Indonesian Stock Exchange (IDX) and using a quantitative research technique. The research examines the links between the dependent variable, which is represented by the cash effective tax rate (CETR), and the independent variables, transfer pricing (TP) and capital intensity (CAP), using multiple regression analysis and a legal approach. The corporations' transfer pricing methods and CETR vary significantly, according to descriptive data, indicating intricate dynamics in their tax management techniques. The results show a positive but statistically insignificant association between transfer price and CETR, which is consistent with contradictory findings from earlier research that supported and refuted the relevance of this relationship. The study's findings are important to policymakers because they imply that, despite transfer pricing's existence, its effect on tax evasion could not be as significant or clear-cut as previously thought. This realization necessitates a more sophisticated approach to mining industry compliance and regulatory frameworks, especially in environments like Indonesia. To get a deeper understanding of the changing dynamics of capital intensity and transfer pricing in influencing tax policies, future study should broaden its scope and include a wider range of factors over a longer time period.

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.

Enterprise risk management and corporate tax planning

AbstractThis study examines the impact of enterprise risk management (ERM) programs on corporate tax planning. ERM is a holistic approach to managing an enterprise's entire portfolio of risks. We hand‐collect data on ERM adoption for a sample of Standard & Poor's 500 firms from 1993 to 2016. We empirically document that firms with ERM programs have lower cash effective tax rates than firms without ERM. Additionally, we find that the relation between ERM and tax avoidance is stronger among firms with more business segments. Finally, our results suggest ERM adoption offsets an increase in opacity and tax uncertainty typically associated with tax avoidance strategies. Overall, we provide evidence that ERM allows firms to exploit tax avoidance opportunities through enhanced coordination and communication.

THE IMPACT OF THE INFLUENCE OF PROFITABILITY, COMPANY SIZE, AND LEVERAGES ON TAX AVOIDANCE

The research aims to empirically test the influence of profitability, company size, and leverage on tax avoidance. The independent variables are profitability with the Net Profit Margin, firm size with the natural logarithm of total assets, leverage with debt to equity ratio and the dependent variable uses tax avoidance with the Effective Tax Rate minus the Cash Effective Tax Rate. The samples tested in the research were the substance of the property and real estate subsector listed on the IDX for the 2019 to 2021 period. There are financial reports for 17 entities, with 51 data assessed as meeting the criteria. The research method uses descriptive statistical tests, which then perform classical tests of hypotheses, including normality, heteroskedasticity, multicollinearity, and autocorrelation. In addition, the hypothesis regarding the influence of the independent variable on the dependent variable is tested. This test uses F-test statistics (simultaneous), T-test (partial), and coefficient of determination, which are then continued in the study using multiple regression analysis. Based on the subtest results, it was found that profitability and debt have significantly favorable effects on tax avoidance and that firm size has no effect on tax avoidance.

Nexus between profitability, firm size and leverage and tax avoidance: evidence from an emerging economy

PurposeThis study examines the impact of profitability, firm size and leverage on corporate tax avoidance in Bangladesh, an emerging South Asian economy.Design/methodology/approachA balanced panel data of 62 firms from Dhaka and Chittagong stock exchanges in Bangladesh from 2009 to 2020 were used to run the regression. This study employed the fully modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS) to examine the hypotheses.FindingsThe findings show that large firms positively impact corporate tax avoidance. Similarly, profitability and leverage are positively associated with tax avoidance, and the results are significant. Furthermore, the study conducts robustness tests that confirm the findings.Research limitations/implicationsThe use of cash effective tax rate (ETR) to investigate firms’ tax avoidance practices poses some limitations, and the results should be interpreted cautiously.Practical implicationsThe current study may help policymakers better enhance tax collection from business firms. The findings could serve as a valuable input for effectively monitoring tax collection from large profit-earning firms.Originality/valueTo the authors' best knowledge, this is the first historical attempt in Bangladesh to use panel data to examine the relationship between the firm’s level characteristics and corporate tax avoidance. Panel data often provides greater flexibility with large data, simplifying calculation and statistical analysis.

PENGARUH INTENSITAS MODAL, TRANSFER PRICING DAN PERTUMBUHAN PENJUALAN TERHADAP TAX AVOIDANCE PADA PERUSAHAAN SEKTOR PERINDUSTRIAN YANG TERDAFTAR DI BURSA EFEK INDONESIA TAHUN 2018-2022

Taxes are the largest source of revenue for the country, making the realization of tax revenue a crucial aspect for the growth and development of a nation. This research aims to analyse the influence of capital intensity, transfer pricing, and sales growth on tax avoidance in industrial sector companies listed on the Indonesia Stock Exchange from 2018 to 2022. The population and sample used in this research include all companies in the industrial sector. In sample selection, this research employs purposive sampling technique, consisting of 65 observational data from 13 selected companies. The data used in this study are secondary data, and a quantitative research method is applied. Tax avoidance in this research is proxied by using the cash effective tax rate (CETR). The data is processed using E-views version 12. The results of partial regression tests from this research conclude that 1) capital intensity has no significant effect on tax avoidance, 2) transfer pricing has no significant effect on tax avoidance, and 3) sales growth has a significant effect on tax avoidance. Simultaneous regression test results in this research conclude that capital intensity, transfer pricing, and sales growth collectively (simultaneously) influence tax avoidance.

The Influence of Good Corporate Governance and Liquidity on Tax Management in Indonesia: The Study on Manufacturing Companies

The aims of this study is to analyse the effect of good corporate governance and liquidity on tax management. Tax management is measured by modified measure based on Cash effective tax rate (CETR) compared with corporate tax rate. Corporate governance is measured by proportion of independent commissioner, audit committee, audit quality, institutional ownership, and compensation of executive managements, liquidity is measured by current ratio. This research sample consist manufacturing companies selected by purposive sampling. There are 14 companies fulfilling the criteria. This research used binary logistic regression analysis. The results of this research indicate that the proportion of independent commissioner and audit quality positively affect tax management significantly. Meanwhile, audit committee, institutional ownership, compensation of executive managements and liquidity do not significantly affect the company's tax management.

Offshore activities and corporate tax avoidance

We investigate the relation between tax avoidance and offshore activities using a new text-based measure for offshore activities based on Hoberg and Moon (2017, 2019). Our evidence shows that, although providing cross-border tax-avoidance opportunities, offshore activities reduce the marginal benefits of tax avoidance by introducing incremental foreign-market risk exposure. We find that the intensity of offshore sales of outputs is positively associated with the cash effective tax rate. The effect is stronger when the offshore sales rely on overseas production rather than domestic production, when the offshore sales are located in countries with higher economic uncertainty, when the firm has a lower ability to pass on shocks, and when the firm has less flexibility in adjusting tax strategies.

The Impact of Earning Management, Inventory Intensity and Management Compensation on Tax Avoidance

The aim of this research is to examine the factors impacting tax avoidance in Indonesia. The study utilizes various independent variables including earnings management, independent commissioners, audit quality, management compensation, inventory intensity, and profitability. The dependent variable under investigation is tax avoidance. The research focuses on companies in the consumer non-cyclicals, consumer cyclicals, and basic material sectors listed on the Indonesia Stock Exchange from 2020 to 2022. Through purposive sampling, 54 companies fitting the criteria were selected then analyzed using multiple regression analysis. The findings suggest that audit quality has a positive correlation with the Cash Effective Tax Rate (CETR), indicating that higher audit quality leads to an increase in CETR and a decrease in tax avoidance. Meanwhile, earnings management, independent commissioners, management compensation, inventory intensity, and profitability have no effect on tax avoidance. This study is the first study conducted on companies in Indonesia that have engaged in tax avoidance during the Covid-19 pandemic (2020-2022).

Does audit regulation improve corporate decision making? Evidence from the disclosure of tax‐related key audit matters

AbstractOur study examines changes in corporate cash tax savings around the disclosure of tax‐related key audit matters (tax KAMs). We expect publicly disclosed tax KAMs to increase the visibility of a firm's tax complexity and uncertainty, thereby motivating the firm to improve its tax function. In turn, we expect to observe increased cash tax savings as an outcome of improvements to corporate tax functions. As predicted, we document that firms exhibit lower cash effective tax rates in the period after their auditors disclose tax KAMs. Additional tests suggest that disclosure of tax KAMs does not increase the likelihood of firms being aggressive in cash tax planning and increased cash tax savings are primarily driven by firms that adjust toward their optimal levels of cash tax savings. Cross‐sectional analyses support our expectation that post‐disclosure increases in cash tax savings are less pronounced when investors were better informed about firms’ tax strategies in the pre‐disclosure period and when firms faced stronger tax enforcement in the pre‐disclosure period. Collectively, our results highlight the role of KAM disclosure requirements in prompting firms to improve their internal operational decisions.

The effect of shareholder scrutiny on corporate tax behavior: Evidence from shareholder tax litigation

AbstractThis study examines the effect of shareholder scrutiny of corporate tax avoidance behavior and its related financial reporting. Specifically, we explore the factors associated with shareholder tax litigation and its effect on the future tax behavior of the sued firm and its peers. We find that sued firms have lower cash and GAAP effective tax rates (ETRs) and engage in extreme tax avoidance before litigation. After litigation, they decrease tax avoidance activities, relative to matched control firms. Peer firms in the same industry as sued firms similarly reduce their level of tax avoidance and the likelihood of extreme tax avoidance after the litigation, relative to control firms. Additional analyses suggest that sued firms change their tax avoidance behavior, rather than merely their tax financial reporting. Finally, the spillover results are strongest for peer firms with the most tax avoidance (i.e., the lowest cash ETRs) when the sued firm's alleged misconduct is revealed.

The Influence of Audit Fee, Audit Tenure, Audit Quality and Audit Committee on Tax Avoidance (Manufacturing Sector 2018-2022)

Taxes represent the largest source of income for the country, yet a considerable number of corporate taxpayers view them as a burdensome obligation to be minimized, leading to pervasive tax avoidance practices. This research aims to assess the impact of audit fees, audit tenure, audit quality, and the audit committee on tax avoidance metrics, specifically Cash Effective Tax Rate (CETR), Effective Tax Rate (ETR), and Books Tax Differences (BTD), employing the Theory of Planned Behavior. The research employs a quantitative approach with panel data collected from 34 manufacturing companies listed on the IDX, utilizing multiple linear regression analysis through Eviews 12 software. The results indicate that audit fees and audit quality have a significant negative effect on CETR, while audit tenure has a significant positive impact. For ETR, audit fees and audit quality negatively influence it, while audit tenure shows a significant positive effect, and the audit committee does not significantly affect it. Finally, audit fees and audit quality have a significant negative impact on BTD, audit tenure positively affects it, and the audit committee does not significantly influence it.

The Influence of the Directors Boaards and Operational Profit and Loss on Tax Avoidance (Empirical Study of Sub-Oil and Natural Gas Companies Listed on the Indonesia Stock Exchange 2017-2022)

The phenomenon of taxation in Indonesia is Indonesia's low tax ratio in 2021 which is recorded at only 9.11%, a low tax ratio indicates a high level of tax avoidance in a country. This study aims to determine the influence of the Board of Directors and Operational Profit and Loss on Tax Avoidance. Tax avoidance in this study is measured by the Cash Effective Tax Rate. This study used a sample of oil and gas companies listed on the Indonesia Stock Exchange during 2017 – 2022 using a purposive sampling method. The analytical method used is quantitative descriptive analysis. The results of this study indicate that the proxy for the board of directors, operational profit and loss has no effect on tax avoidance