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Determinants of the complementary level of financial and tax aggressiveness: a cross-country study

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  • Nurul Aisyah Rachmawati
  • Sidharta Utama
  • Dwi Martani
  • Ratna Wardhani

Abstract

This study aims to examine the factors affecting the complementary level of financial and tax aggressiveness. This research considers the diversity of cost and benefit faced by firms when presenting financial and tax reporting aggressively at the same time. Our proxies for cost (the level of detection risk) are country-level variables, namely book-tax conformity and law enforcement. Meanwhile, our proxy for benefit is the financial constraint of a firm. In this study, we develop a new measure of financial constraint which is more comprehensive. Using a sample of listed firms in East Asia and Europe from 2014 to 2016, we find that firms with a higher level of detection risk (such as higher book-tax conformity or stronger law enforcement) tend to engage in a lower complementary level of financial and tax aggressiveness, in accordance with the developed hypothesis. We also find that firms tend to engage in a higher complementary level of financial and tax aggressiveness if they will derive significant benefit from aggressive financial and tax reporting activities. These results suggest that firm and country characteristics influence managers' decisions to present financial statements and tax reporting aggressively at the same time or not.

Suggested Citation

  • Nurul Aisyah Rachmawati & Sidharta Utama & Dwi Martani & Ratna Wardhani, 2019. "Determinants of the complementary level of financial and tax aggressiveness: a cross-country study," International Journal of Managerial and Financial Accounting, Inderscience Enterprises Ltd, vol. 11(2), pages 145-166.
    • Handle: RePEc:ids:injmfa:v:11:y:2019:i:2:p:145-166
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    Cited by:

    1. Nurul Aisyah Rachmawati1 & Sidharta Utama & Dwi Martani & Ratna Wardhani, 2020. "Do Country Characteristics Affect the Complementary Level of Financial and Tax Aggressiveness?," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 16(1), pages 45-62.
    2. Salsabila Anggiani Amriza & Nurul Aisyah Rachmawati, 2021. "The influence factors of the complementary level of financial and tax aggressiveness in Indonesia," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 10(6), pages 213-220, September.

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