IDEAS home Printed from https://ideas.repec.org/a/sae/ausman/v28y2003i1p63-82.html
   My bibliography  Save this article

The Role of Political Costs in the Deferred Tax Policy Choice

Author

Listed:
  • Baljit K. Sidhu

    (Australian Graduate School of Management, UNSW. Sydney, NSW 2052.)

  • Greg Whittred

    (Faculty of Commerce, University of New South Wales, Sydney, NSW 2052.)

Abstract

This paper demonstrates that (time- and context-specific) ‘political costs' were instrumental in the entry of deferred tax accounting into Australian GAAP in the early 1970's—a period in which high profits and low corporate taxes coincided in a volatile political mix. Politically exposed companies (of large size, with low effective tax rates, particularly in the mining industry) with the ability to reduce their exposure through deferred tax accounting (if it was tax-expense increasing), adopted the method. Companies for whom adoption would be tax-expense reducing, either deferred adoption to a less politically sensitive period or adopted with the average impact being such as to not lower their reported tax rate below that of the average rate of non-adopters.

Suggested Citation

  • Baljit K. Sidhu & Greg Whittred, 2003. "The Role of Political Costs in the Deferred Tax Policy Choice," Australian Journal of Management, Australian School of Business, vol. 28(1), pages 63-82, June.
    • Handle: RePEc:sae:ausman:v:28:y:2003:i:1:p:63-82
    DOI: 10.1177/031289620302800103
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/031289620302800103
    Download Restriction: no
    File URL: https://libkey.io/10.1177/031289620302800103?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Press, Eric G. & Weintrop, Joseph B., 1990. "Accounting-based constraints in public and private debt agreements : Their association with leverage and impact on accounting choice," Journal of Accounting and Economics, Elsevier, vol. 12(1-3), pages 65-95, January.
    2. Livingstone, Jl, 1969. "Accelerated Depreciation, Tax Allocation, And Cyclical Asset Expenditures Of Large Manufacturing Companies," Journal of Accounting Research, Wiley Blackwell, vol. 7(2), pages 245-256.
    3. Lys, Thomas, 1984. "Mandated accounting changes and debt covenants : The case of oil and gas accounting," Journal of Accounting and Economics, Elsevier, vol. 6(1), pages 39-65, April.
    4. Duke, Joanne C. & Hunt, Herbert III, 1990. "An empirical examination of debt covenant restrictions and accounting-related debt proxies," Journal of Accounting and Economics, Elsevier, vol. 12(1-3), pages 45-63, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cheryl Chang & Kathleen Herbohn & Irene Tutticci, 2009. "Market's perception of deferred tax accruals," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 49(4), pages 645-673, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fields, Thomas D. & Lys, Thomas Z. & Vincent, Linda, 2001. "Empirical research on accounting choice," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 255-307, September.
    2. Watts, Ross L., 1992. "Accounting choice theory and market-based research in accounting," The British Accounting Review, Elsevier, vol. 24(3), pages 235-267.
    3. Athanasios P. Bellas & Christos Tzovas, 2008. "The Effects of Dependency on Debt Financing On Financial Reporting Policy: The Case of Greece," European Research Studies Journal, European Research Studies Journal, vol. 0(1-2), pages 13-30.
    4. Dean Hanlon, 2019. "Mandatory accounting change and debt covenant violation: Additional evidence from SFAS 150," Australian Journal of Management, Australian School of Business, vol. 44(3), pages 355-387, August.
    5. Cornett, Marcia Millon & Rezaee, Zabihollah & Tehranian, Hassan, 1996. "An investigation of capital market reactions to pronouncements on fair value accounting," Journal of Accounting and Economics, Elsevier, vol. 22(1-3), pages 119-154, October.
    6. Balsam, Steven & Haw, In-Mu & Lilien, Steven B., 1995. "Mandated accounting changes and managerial discretion," Journal of Accounting and Economics, Elsevier, vol. 20(1), pages 3-29, July.
    7. Thomas W. Scott, 1991. "Pension disclosures under SFAS No. 87: Theory and evidence," Contemporary Accounting Research, John Wiley & Sons, vol. 8(1), pages 62-81, September.
    8. Hand, John R. M. & Skantz, Terrance R., 1997. "The economic determinants of accounting choices: The unique case of equity carve-outs under SAB 51," Journal of Accounting and Economics, Elsevier, vol. 24(2), pages 175-203, December.
    9. Alan V. S. Douglas, 2003. "Corporate Investment Incentives and Accounting†Based Debt Covenants," Contemporary Accounting Research, John Wiley & Sons, vol. 20(4), pages 645-683, December.
    10. Kusano, Masaki & Sakuma, Yoshihiro & Tsunogaya, Noriyuki, 2016. "Economic consequences of changes in the lease accounting standard: Evidence from Japan," Journal of Contemporary Accounting and Economics, Elsevier, vol. 12(1), pages 73-88.
    11. Adam Bordeman & Peter Demerjian, 2022. "Do Borrowers Intentionally Avoid Covenant Violations? A Reexamination of the Debt Covenant Hypothesis," Journal of Accounting Research, Wiley Blackwell, vol. 60(5), pages 1741-1774, December.
    12. D'Souza, Julia & Jacob, John & Ramesh, K., 2000. "The use of accounting flexibility to reduce labor renegotiation costs and manage earnings," Journal of Accounting and Economics, Elsevier, vol. 30(2), pages 187-208, October.
    13. Calegari, Michael J., 2000. "The effect of tax accounting rules on capital structure and discretionary accruals," Journal of Accounting and Economics, Elsevier, vol. 30(1), pages 1-31, August.
    14. Aboody, David & Kasznik, Ron & Williams, Michael, 2000. "Purchase versus pooling in stock-for-stock acquisitions: Why do firms care?," Journal of Accounting and Economics, Elsevier, vol. 29(3), pages 261-286, June.
    15. Messod D. Beneish & Eric Press, 1995. "Interrelation Among Events of Default," Contemporary Accounting Research, John Wiley & Sons, vol. 12(1), pages 57-84, September.
    16. Zhang, Jieying, 2008. "The contracting benefits of accounting conservatism to lenders and borrowers," Journal of Accounting and Economics, Elsevier, vol. 45(1), pages 27-54, March.
    17. Paul Klumpes & Mark Whittington & Yong Li, 2009. "Determinants of the Pension Curtailment Decisions of UK Firms," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(7-8), pages 899-924.
    18. Begley, Joy & Feltham, Gerald A., 1999. "An empirical examination of the relation between debt contracts and management incentives," Journal of Accounting and Economics, Elsevier, vol. 27(2), pages 229-259, April.
    19. Heibatollah Sami & Mary Jeanne Welsh, 1992. "Characteristics of early and late adopters of pension accounting standard SFAS No. 87," Contemporary Accounting Research, John Wiley & Sons, vol. 9(1), pages 212-236, September.
    20. Han, Bong H. & Manry, David, 2004. "The value-relevance of R&D and advertising expenditures: Evidence from Korea," The International Journal of Accounting, Elsevier, vol. 39(2), pages 155-173.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:ausman:v:28:y:2003:i:1:p:63-82. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.agsm.edu.au .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.