A trade-off between tax reporting and financial reporting aggressiveness based on financial variables

Acropolis Gemilang Mada Ngara Ledewara, Ari Budi Kristanto, Maria Rio Rita

Abstract


Firms likely exhibit greater financial reporting aggressiveness to increase their earnings and eventually attract investors. However, firms also tend to reduce their taxable income to maximize their cash flow. Consequently, firms arguably manage their corporate income tax aggressively. This research aims to investigate whether firms with low debt levels are more aggressive in their tax reporting than in financial reporting, firms with financial deficits are more aggressive in their financial reporting than in tax reporting, and firms with better access to external/internal capital market are more aggressive in their tax reporting rather than in financial reporting. We use three financial variables, namely debt ratios, financial deficits, and access to internal or external capital markets as proxies for firms’ financial condition. This study finds that all financial variables except financial deficits, motivate firms to engage in aggressive reporting decisions. Specifically, firms with higher debt ratios and easier access to external or internal capital markets will likely exhibit more aggressive tax reporting than financial reporting.

JEL Classification: H26, G32, M41

DOI: https://doi.org/10.26905/jkdp.v24i3.4018


Keywords


Earnings management; Financial reporting aggressiveness; Tax avoidance

Full Text:

PDF

References


Azizah, N., & Kusmuriyanto, K. (2016). The effect of related party transaction, leverage, commissioners and directors compensation on tax aggressiveness. Accounting Analysis Journal, 5(4), 307-316.

Chen, S., Chen, X., Chen, Q., & Shevlin, T. (2010). Are family firms more tax aggressiveness than non family firms? Journal of Finance Economics, 95(1), 41-61. https://doi.org/10.1016/j.jfineco.2009.02.003

Darmanto, T., & Ardiansari, A. (2017). Peran kebijakan hutang memediasi business risk dan firm size terhadap nilai perusahaan. Management Analysis Journal, 6(4), 448-460.

Firmansyah, A., & Bayuaji, R. (2019). Financial constraints, investment opportunity set, financial reporting aggressiveness, tax aggressiveness: Evidence from Indonesia manufacturing companies. Academy of Accounting and Financial Studies Journal, 23(5).

Frank, M. M., & Goyal, V. (2003). Testing the pecking order theory of capital structure. Journal of Financial Economics, 67(2), 217-248. https://doi.org/10.1016/s0304-405x(02)00252-0

Frank, M. M., Lynch, L. J., & Rego, S. O. (2009). Tax reporting agressiveness and its relation to aggressiveness financial reporting. The Accounting Review, 84(2), 467-496. https://doi.org/10.2308/accr.2009.84.2.467

Gudono. (2015). Analisis Data Multivariat (4 ed.). Yogyakarta: BPFE.

Kamila, P. A. (2014). Analisis hubungan agresivitas pelaporan keuangan dan agresivitas pajak. Jurnal Keuangan dan Perbankan, 16(2), 228-245.

Kerstens, K., & Van de Woestyne, I. (2014). Comparing Malmquist and Hicks–Moorsteen productivity indices: Exploring the impact of unbalanced vs. balanced panel data. European Journal of Operational Research, 233(3), 749-758. https://doi.org/10.1016/j.ejor.2013.09.009

Kim, J-B., Li, Y., & Zhang, L. (2011). Corporate tax avoidance and stock price crash risk: Firm level analysis. Journal of FInancial Economics, 10(3), 639-662. https://doi.org/10.1016/j.jfineco.2010.07.007

Koh, Y., & Lee, H.-A. (2015). The effect of financial factors on firms’ financial and tax reporting decisions. Asian Review of Accounting, 23(2), 110-138.

https://doi.org/10.1108/ara-01-2014-0016

Kweon, S. C., Kang, Y. O., Kim, C. H., & Kim, J. H. (2009). An empirical study on relationship between tax avoidance and enterprise character's variables. Korean International Accounting Review, 26, 189-210. https://doi.org/10.21073/kiar.2009..26.010

Lanis, R., & Richardson, G. (2012a). Corporate social responsibility and tax aggressiveness: a test of legitimacy theory. Accounting, Auditing & Accountability Journal, 26(1), 75-100. https://doi.org/10.1108/09513571311285621

Lanis, R., & Richardson, G. (2012b). Corporate social responsibility and tax aggressiveness: An empirical analysis. Journal of Accounting and Public Policy, 31(1), 86-108. https://doi.org/10.1016/j.jaccpubpol.2011.10.006

Marsdenia, & Martani, D. (2018). Environmental CSR disclosure and tax avoidance behavior: Empirical study of Indonesia’s Capital Market Listed Company. IOP Conference Series: Earth and Environmental Science, 175, 012088.

https://doi.org/10.1088/1755-1315/175/1/012088

Mary, M. F., Luan, J. L., & Sonja, O. R. (2009). Tax reporting aggressiveness and its relation to aggressiveness financial reporting. The Accounting Review, 84(2), 467-496. https://doi.org/10.2308/accr.2009.84.2.467

Multazam, S., & Rahamwaty, R. (2018). The influence leverage, executive incentives, managerial ownership on tax aggressiveness (Study in manufacturing companies listed on IDX Year 2012-2014). Jurnal Ilmiah Mahasiswa Ekonomi Akuntansi, 3(3), 494-504.

Niskanen, J., & Keloharju, M. (2000). Earnings cosmetics in a tax-driven accounting environment: evidence from Finnish public firms. European Accounting Review, 9(3), 443-452. https://doi.org/10.1080/09638180020017159

Prawira, I. F. A. (2017). Corporate governance and tax aggresiveness, an evidence on manufacturing companies in Indonesia. International Journal of Accounting and Economics Studies, 5(2), 134-140. https://doi.org/10.14419/ijaes.v5i2.8132

Rachmawati, N. A., & Martani, D. (2017). Book-tax conformity level on the relationship between tax reporting aggressiveness and financial reporting aggressiveness. Australasian Accounting, Business and Finance Journal, 11(4), 86-101. https://doi.org/10.14453/aabfj.v11i4.7

Rego, S. O., & Wilson, R. (2009). Executive compensation, tax reporting aggressiveness, and future firm performance Working Paper, University of Iowa.

Sari, D., & Tjen, C. (2017). Corporate social responsibility disclosure, environmental performance, and tax aggressiveness. International Research Journal of Business studies, 9(2).

Seviana, A. A., & Kristanto, A. B. (2020). Ketidakpastian lingkungan dan tendensi agresivitas pelaporan keuangan versus pajak: Efek moderasi kecakapan manajerial. Jurnal Ilmiah Akuntansi dan Humanika, 10(1), 1-11.

Shackelford, D. A., & Shevlin, T. (2001). Empirical tax research in accounting. Journal of Accounting and Economics, 31(1-3), 321-387. https://doi.org/10.1016/s0165-4101(01)00022-2

Soraya, S., & Permanasari, M. (2017). Faktor-faktor yang mempengaruhi kebijakan hutang perusahaan non keuangan publik. Jurnal Bisnis dan Akuntansi, 19(1), 103-116.

Sugiyono, P. (2017). Metode Penelitian Bisnis: Pendekatan Kuantitatif, Kualitatif, Kombinasi, dan R&D: Penerbit CV. Alfabeta: Bandung.

Tjondro, E., & Permata, A. A. (2019). Earning management or tax avoidance? Company decision on accounting and tax reporting cost. Paper presented at the International Conference on Tourism, Economics, Accounting, Management, and Social Science (TEAMS 19). https://doi.org/10.2991/teams-19.2019.4




DOI: https://doi.org/10.26905/jkdp.v24i3.4018

Refbacks

  • There are currently no refbacks.


Bookmark and Share


Jurnal Keuangan dan Perbankan (Journal of Finance and Banking)

Diploma Program of Banking and Finance, Faculty of Economics and Business, University of Merdeka Malang

Published by University of Merdeka Malang

Mailing Address:
2nd floor Finance and Banking Building, Jl. Terusan Raya Dieng No. 57 Malang, East Java, Indonesia
Phone: +62 813-3180-1534
Email: jkp@unmer.ac.id

This work is licensed under a Creative
Commons Attribution-ShareAlike 4.0