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Tax avoidance and accounting conservatism

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  • Bornemann, Tobias

Abstract

This study analyzes the relation between accounting conservatism, future tax rate cuts and countries' level of book-tax conformity. Firms have an incentive to increase conservatism in financial reporting when a tax rate cut is imminent to shift taxable income into the lower taxed future. Using a panel of firms across 18 countries from 1995 to 2010 I find that conditional conservatism is positively and significantly associated with future tax rate cuts when book-tax conformity is high. This effect is particularly pronounced for firms that concentrate the majority of their operations in the country in which the tax rate is cut. In contrast, there is no significant relation between future tax rate cuts and unconditional conservatism.

Suggested Citation

  • Bornemann, Tobias, 2018. "Tax avoidance and accounting conservatism," arqus Discussion Papers in Quantitative Tax Research 232, arqus - Arbeitskreis Quantitative Steuerlehre.
    • Handle: RePEc:zbw:arqudp:232
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    References listed on IDEAS

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    Cited by:

    1. Hyung-Jong Na & Hyeon Kang & Hyang-Eun Lee, 2021. "Does Tax Incentives Affect Future Firm Value for Corporate Sustainability?," Sustainability, MDPI, vol. 13(22), pages 1-17, November.
    2. Kimouche Bilal, 2021. "Measuring Accounting Conservatism in Financial Reports: A Comparison Between France and the United Kingdom," Journal of Social and Economic Statistics, Sciendo, vol. 10(1-2), pages 56-75, December.
    3. Yingkai Tang & Yao Liu & Jing Liu & Weiping Li, 2019. "Does More Managerial Power Impede or Promote Corporate Tax Avoidance? Evidence from Listed Chinese Companies," Sustainability, MDPI, vol. 11(7), pages 1-18, March.

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    More about this item

    Keywords

    accounting conservatism; tax rate cuts; book-tax conformity;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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