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The influence of tax manipulation upon financial performance: evidence from Bangladesh

Author

Listed:
  • Nabila Nisha
  • Afrin Rifat

Abstract

Many firms in developing countries are known to report higher book income to shareholders and lower taxable income to taxation authorities in the same reporting period. Generally, this gap between financial and taxable income suggests that firms are taking advantage of book-tax differences for avoiding tax payments. However, such tax manipulations can often affect firms' financial performances. This study therefore aims to analyse the empirical relationships between book-tax differences and tax manipulations, and their overall impact upon firms' financial performances. A sample of 111 companies listed on Dhaka Stock Exchange (DSE) is analysed to conduct this study using linear panel regressions. Findings indicate that firms disclose different tax information for taxation authorities compared to stakeholders in order to manage earnings and avoid taxes in Bangladesh. Moreover, firms use tax shelters to escape from tax payments and report a good financial picture, thereby confirming that tax manipulations influence firms' financial performances.

Suggested Citation

  • Nabila Nisha & Afrin Rifat, 2019. "The influence of tax manipulation upon financial performance: evidence from Bangladesh," Afro-Asian Journal of Finance and Accounting, Inderscience Enterprises Ltd, vol. 9(1), pages 60-79.
    • Handle: RePEc:ids:afasfa:v:9:y:2019:i:1:p:60-79
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