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Tax avoidance and earnings management of firms in Ghana: does the funding strategy matter?

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  • Mohammed Amidu
  • Sally Mingle Yorke

Abstract

The agency perspective of tax avoidance suggests a complementary relationship between tax avoidance and earnings management. Thus, this paper seeks to evaluate how the firm's financial policy affects the relationship between corporate tax avoidance (CTA) and earnings management (EM) using a sample of 119 firms from emerging and developing countries over a four-year period 2010-2013. We employ system methods of moments (GMM) and find that the financing structure of a firm plays little role on the firm's incentives to engage in avoidance activities and/or manage their earnings. The results imply that monitoring managerial diversionary behaviour by relying on external monitoring mechanism provided by debt holders does not lead to a reduction in EM associated with increased tax avoidance activities.

Suggested Citation

  • Mohammed Amidu & Sally Mingle Yorke, 2017. "Tax avoidance and earnings management of firms in Ghana: does the funding strategy matter?," International Journal of Critical Accounting, Inderscience Enterprises Ltd, vol. 9(3), pages 238-264.
    • Handle: RePEc:ids:ijcrac:v:9:y:2017:i:3:p:238-264
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    Cited by:

    1. Ines Kahloul & Jocelyn Grira & Khawla Hlel, 2023. "The trilogy of economic policy uncertainty, earnings management and firm performance: empirical evidence from France," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 47(1), pages 184-206, March.
    2. Amidu, Mohammed & Mohammed Sissy, Aisha & Haruna, Issahaku, 2017. "The effects of cross-border banking and institutional quality on accounting information of banks in Africa," MPRA Paper 101509, University Library of Munich, Germany, revised 15 Sep 2017.

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