Tax Avoidance, Near‐Future Earnings, and Resource Availability

Lee, Namryoung

doi:10.1111/irfi.12221

Cited by 3 publications

(3 citation statements)

References 39 publications

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“…Similarly, the transparency of countries and firms also influence negatively the tax avoidance (Kerr, 2019). Lee (2020) relates the tax avoidance practices with profitability in near future and argues that firms plan for taxes keeping in view the near future expected profitability and resource availability.…”

Section: Literature Review and Hypothesismentioning

confidence: 99%

Tax avoidance as earning game player in emerging economies: evidence from Pakistan

Marwat

Rajput

Dakhan

et al. 2021

SAJBS

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PurposeThe current study aims to achieve two targets. First, examine empirically that whether corporate managers use tax avoidance to influence short-term profitability? Second, investigate the impact of tax avoidance on the value of firms. The tax accounts provide the opportunity to influence temporary/permanent profitability but empirical studies overlooking this matter, particularly in emerging economies.Design/methodology/approachFirst, the authors identified unexpected fluctuations of tax avoidance and then examine whether it impacts the profitability signal and firms' value? The unbalanced panel data of 189 non-financial firms for the period 2000–2018 are used for empirical analysis. The estimation biases and results consistency are verified by using two different econometric models including generalized least square and two-stage least squareFindingsThe study identifies that managers manipulate the profitability signal through tax avoidance. Tax avoidance practices help in earning management and earning smoothing to avoid negative signals in the stock market. In line with the behavioral finance view, tax avoidance has a positive impact on current stock returns because investors focus on profitability without a detailed screening of cash flows.Originality/valueA limited number of studies investigate the use of tax avoidance for manipulation of the short-term earning signal. Identifying gaps and limitations in the literature, this study provides invaluable insights into tax avoidance and its association with the profitability and value of firms. The findings are important for investors, managers and policymakers in making portfolio decisions and corporate policies.

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Section: Literature Review and Hypothesismentioning

confidence: 99%

Tax avoidance as earning game player in emerging economies: evidence from Pakistan

Marwat

Rajput

Dakhan

et al. 2021

SAJBS

View full text Add to dashboard Cite

show abstract

“…Following the involvements of several multinational corporations (MNCs) in aggressive tax management, the issue of tax planning has attracted attention among academics, political bodies, investors and the public at large (Huseynov et al, 2017;Lee, 2020). For instance, recent evidence about tax management in companies, such as Starbucks, Apple and Facebook (Davis et al, 2015), and the unforgettable scandals involving firms, such as Enron and WorldCom (McGill and Outslay, 2004), have shown that tax planning has become more aggressive, which is notable in today's businesses around the globe.…”

Section: Introductionmentioning

confidence: 99%

Firm-specific Determinants of Aggressive Tax Management among East African Firms

Kimea

Mkhize

Maama

2023

IJEFI

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Since tax represents an inflow of revenue to the government and an outflow of revenue to firms, factors that influence the tax planning activities of firms have gained considerable attention among management, shareholders, policymakers and researchers. Following the impact of taxation on an economy and a firm, the study investigated the factors that influence aggressive tax management practices of firms listed in East African economies. Data were collected from 99 firms for an 11-year period, from 2008 to 2018. Both cash effective tax rate and accounting effective rate were used as measures of tax planning. Multiple regression models were used for the estimation. The study results showed that smaller firms are more tax aggressive compared with larger firms, which is consistent with the political cost theory. This finding may alert policymakers and regulatory authorities (for example, revenue authorities) that small firms are most likely to avoid paying taxes compared with larger firms. This might be associated with fewer regulations and enforcements imposed on this category of business. The evidence further demonstrated that profitable firms are less tax aggressive. Consistent with the political power theory, this study has confirmed the view that profitable firms have enough earnings to pay their taxes and thus are less tax aggressive. The study further found that older firms are less involved in tax avoidance. This study has policy implications as it will assist both policymakers and firm management in their decision-making. Shareholders and firm management would benefit by understanding why some firms successfully reduce their tax burden compared to other firms.

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“…Firms are increasingly finding ways to reduce costs, maintain more profit for investment opportunities and increase their values. Among the strategies to achieve these objectives, tax planning represents a major activity that takes a large part of management time and resources (Lee, 2020). This is because tax erodes a significant percentage of firms' income.…”

Section: Introductionmentioning

confidence: 99%

A longitudinal analysis of tax planning schemes of firms in East Africa

Kimea

Mkhize

2021

Investment Management and Financial Innovations

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Taxes play a significant role in the social and economic development of counties. On the other hand, taxes represent a significant cost to firms; hence they devise legal ways to reduce their taxes through tax planning. In East Africa, the statutory tax rate of firms averages 30%, which is considered a major burden to the firms. As a result, this study aims to longitudinally examine the tax planning practices of listed firms in East Africa countries (EACs). The study used twelve-year annual reports of ninety-one firms from EACs. Both cash effective tax rate (CEFR) and accounting effective tax rate were employed as tax planning measures. Descriptive statistics together with Wilcoxon signed-ranked test were used to analyze the results. The study demonstrates the existence of corporate tax planning by the listed firms in EACs. The average CETR of the firms was 17% as opposed to the statutory tax rate of 30%, demonstrating that the firms actively engage in tax planning activities. The evidence further demonstrated a gradual decrease in the tax planning activities of the firms over the past twelve years. The study further found out that the rates of decline in the firms’ tax planning were statistically insignificant. Despite the decrease in the firms’ tax planning, the tax authorities in EACs should enforce tax laws to eliminate the tax planning problem.

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Tax Avoidance, Near‐Future Earnings, and Resource Availability

Cited by 3 publications

References 39 publications

Tax avoidance as earning game player in emerging economies: evidence from Pakistan

Tax avoidance as earning game player in emerging economies: evidence from Pakistan

Firm-specific Determinants of Aggressive Tax Management among East African Firms

A longitudinal analysis of tax planning schemes of firms in East Africa

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