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Tax and financial reporting aggressiveness: evidence from Europe

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  • Alexandra Fernandes

    (Alexandra Fernandes)

  • António Cerqueira

    (António Cerqueira)

  • Elísio Brandão

    (Elísio Brandão)

Abstract

This study examines the relation between financial and tax aggressive reports on public companies from Europe-15, over the period of 2001-2015. Also, it pretends to analyse if the link between tax and financial aggressiveness gets weaker after IFRS adoption in Europe. To run empirical work, I use discretionary accruals calculated by modified-Jones model (Dechow, Sloan, and Sweeney 1995) as a proxy of financial aggressiveness (DFIN) and discretionary permanent differences as a measure of tax aggressiveness (DTAX) (used by Mary Frank, Luann Lynch and Sonja Rego, 2009), which I estimate using EGLS cross section weights for year and Fama- French 12 industries. To prove that firms with aggressive tax report tend to be financial aggressive and that the link between tax and financial aggressiveness is more significant before IFRS implementation I analyse Pearson and Spearman correlation. Additionally, I estimate relation between DTAX and DFIN when controlling for firm size, earnings management and tax planning incentives using OLS and apply the same model with period restriction for before and after IFRS adoption. Results suggest that financial aggressive firms tend to also be tax aggressive and the link between these two aggressive reports is weaker after IFRS adoption

Suggested Citation

  • Alexandra Fernandes & António Cerqueira & Elísio Brandão, 2017. "Tax and financial reporting aggressiveness: evidence from Europe," FEP Working Papers 597, Universidade do Porto, Faculdade de Economia do Porto.
    • Handle: RePEc:por:fepwps:597
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    References listed on IDEAS

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    Cited by:

    1. 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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    More about this item

    Keywords

    Tax planning; earnings management; book tax differences; aggressive financial report; aggressive tax report.;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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