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The Impact of Dividend and Tax Avoidance on Earning Management of Companies

Author

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  • Nazik Maqsood

    (Lecturer at National College of business administration and economics, Pakistan)

  • Tanveer Ahmad Shahid

    (PhD Scholar, School of Commerce and Economics, Superior University, Lahore, Pakistan)

  • Abaid Ul Rehman

    (MS Scholar, School of Accounting & Finance University of Wollongong, Australia Melbourne, Australia)

Abstract

Using a sample covering practically all dividend-paying oil and gas companies companies in Pakistan during 2011–2020, we document that earnings management in these companies is driven by two concurrent forces: the willingness to pay (tax-exempt) dividends and avoiding unnecessary company income tax. Moreover, we show that the need for income increasing earnings management enabling current dividend distribution is mitigated by the amount of retained earnings from prior years. This article adds to the existing literature by providing empirical evidence for dividend and tax-driven earnings management in private oil and gas companies facing neither political pressures nor capital market incentives for earnings disclosures.

Suggested Citation

  • Nazik Maqsood & Tanveer Ahmad Shahid & Abaid Ul Rehman, 2024. "The Impact of Dividend and Tax Avoidance on Earning Management of Companies," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 13(1), pages 256-272.
    • Handle: RePEc:rfh:bbejor:v:13:y:2024:i:1:p:256-272
    DOI: https://doi.org/10.61506/01.00201
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