The effects of earnings management and corporate tax avoidance on firm value

The Influence of Earnings Management and Tax Planning on Firm Value with Audit Quality as Moderating Variable

“…But the tax planning of the company have a risk for companies such as tax penalties or administrative sanctions in the future due to the income tax calculation errors especially with regard to the regulation of the expired tax collection in Indonesia for 5 years. Awareness of tax penalties in accordance with regulation and the activities of tax planning by the company gives another view of the investors then tax planning undertaken will lower the firm value (Ling & Wahab, 2018;Nugroho & Agustia, 2017;Yorke et al, 2016;Chen et al, 2014;Ayers et al, 2009). Then the hypothesis of this study is: Hypothesis 2.…”

“…Strategies undertaken through earnings management can increase firm value (Marjani AT & Puspitosarie, 2013) because of the financial information produced looked beautiful, even if not always so (Kristanti & Priyadi, 2016;Clout et al, 2016). But with the earnings management of the company, the information generated becomes not reliable (Ayers et al, 2009) so it can not be used by the public or investors, and it can cause a decline in firm value on the market (Yorke et al , 2016;Bazrafshan, 2016). Then the hypothesis of this study is: Hypothesis 1.…”

“…Firm Value determinated as a firm value in the public, it measured by Tobin's Q like the research of Desai & Dharmapala (2005), Yorke et al (2016), Appolos N. et al, (2016) with the measurement that Tobins' Q = (MV + TL) / TA, where MV firm share in the market, TL is book value for total liabilities and TA is book value of asset. Earnings Management is an activity of manage profit with accrual measurement, this study adopted measurement of discreationary accruals by Khotari (2005) used by Murwaningsari et al (2015) and is a development of Modified Jones (1991) where Dicretionary Accrual is result of DACit = TACit/TAit-1 -(α1 (1/TA it-1)+α2(∆REVit/TA it-1-∆RECit/TAit-1)+α3 (PPEit/TAit-1)+αROAit.…”

“…Earnings management is an activity carried out by management in managing the company's profits to appear "beautiful" both in a reasonable and unnatural manner or manipulation (Abernethy et al, 2017). If earnings management activities use an improper method, then the financial statements produced are not real values either with manipulation or by reducing information (Ayers et al, 2009), if investors know this, earnings management activities will actually have a negative impact on firm value (Hanlon & Slemrood, 2007;Yorke et al, 2016;Bazrafshan et al, 2016;Shan, 2015). Several new companies listed on the Stock Exchange conducted earnings management to attract investors in the first (Anagnostopoulou & Tsekrekos, 2015) but these activities continued even though the number of shares had already been owned by the public (Chang & Lin, 2018).…”

“…Tax planning is another way to manage to high corporate profits and get the good firm value in the public (Yorke et al, 2016;Pradnyana & Noviari, 2017;Anggoro & Septiani, 2015;Appolos N. et al, 2016;Nugroho & Agustia, 2017), these activities focus on the calculation and the minimization of income tax (Dhaliwal et al, 2004;Illaboya et al, 2016;Ayers, 2009) and included in the companies' financial planning (Ogundajo & Onakoya, 2016 ). The Government considers tax planning as a fraud, but in reality even though it has the aim to minimize the tax expense, not all actions included in the tax planning is contrary with tax regulation.…”