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Business groups, taxes and accruals management

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Author Info
Beuselinck, Christof
Deloof, Mark (Tilburg University, Center for Economic Research)

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Abstract

This paper provides evidence that Belgian firms belonging to a business group have a lower effective tax rate (ETR) and face a less positive association between pre-tax income and ETRs than independent firms. These findings suggest that individual group members apply efficient tax planning techniques in order to minimize taxes at the group level. We hypothesize that group firms strategically adjust firm-level reported earnings levels in response to tax incentives. We find evidence consistent with this hypothesis, in that the intrinsic negative association between total accruals and operating cash flows is more (less) pronounced for group firms facing a positive (zero) marginal tax rate status, compared to independent firms. In addition, we find that a group firm s net tax-paying situation is more important in its discretionary accruals reporting decisions, compared to independent firms. Finally, we identify intra-group receivables as relevant tax-reducing accruals components. Results are robust to alternative model specifications, variable definitions and measures.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 46.

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Date of creation: 2006
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Handle: RePEc:dgr:kubcen:200646

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Web page: http://center.uvt.nl

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Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting

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