Sánchez Ballesta, Juan Pedro

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Sánchez Ballesta, Juan Pedro

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Sánchez Ballesta, Juan Pedro

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Universidad de Murcia. Departamento de Economía Financiera y Contabilidad

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Open Access
Tax avoidance and the cost of debt for SMEs: Evidence from Spain
(2023) Sánchez Ballesta, Juan Pedro; Yagüe, José; Organización de Empresas y Finanzas; Facultades, Departamentos, Servicios y Escuelas::Departamentos de la UMU::Organización de Empresas y Finanzas
We investigate the effect of tax avoidance on the cost of debt for SMEs. Tax avoidance may increase a firm’s cash flows on one hand, but also increase the agency costs, the information risk, and the risk of scrutiny by tax authorities on the other, affecting the cost of debt in opposing ways. Using a sample of Spanish SMEs for the period 2007-2019, our findings show that tax-avoiding SMEs face lower debt costs, suggesting that the positive effects of tax avoidance prevail over the negative ones for SMEs. This finding is consistent with a more favourable assessment of SMEs’ tax avoidance activities by their key finance providers (banks), given SME unique characteristics and their lower agency costs.
Open Access
Defence Contracting and Accrual-Based Earnings Management
(2026-02-11) Callado Muñoz, Francisco José; Sánchez Ballesta, Juan Pedro; Utrero-González, Natalia; Yagüe, José; Economía Financiera y Contabilidad; Organización de Empresas y Finanzas
We examine accrual-based earnings management in Spanish defence firms in 2011–2020, using a unique database from the Spanish Ministry of Defence. We find higher levels of accrual-based earnings management and lower accrual quality in firms where defence contracts represent a high proportion of their total sales. Defence contractors manage earnings upwards under financial constraints and downwards when profitability is high. These findings suggest that defence firms may strategically manage earnings to enhance financial image or reduce visibility. Distinguishing among current defence suppliers, potential suppliers, and nondefence firms, we show that earnings management occurs specifically in years with defence sales.
Open Access
Does tax avoidance affect productivity in SMEs?
(Emerald Publishing Limited, 2024-05-23) Sánchez Ballesta, Juan Pedro; Yagüe, José; Organización de Empresas y Finanzas; Facultades, Departamentos, Servicios y Escuelas::Departamentos de la UMU::Organización de Empresas y Finanzas
Purpose The present paper examines whether tax avoidance practices affect productivity in small and medium-sized enterprises (SMEs). This study also analyses whether this association is moderated by firm size, firm financial constraints, management control of cash flows, or information risk. Design/methodology/approach This study used a sample of Spanish SMEs for the period 2006-2020. Tax avoidance was measured as the difference between the statutory tax rate and the effective tax rate, and three proxies for productivity were used: overall productivity, capital productivity and labour productivity. Firm fixed effects regressions, propensity score matching and change regressions were used to address the potential sample selection bias and endogeneity between tax avoidance and productivity. Findings The results of the empirical analysis suggest that tax avoidance increases productivity in SMEs. This beneficial effect of tax avoidance was found to be higher in small firms than in medium-sized firms, but smaller in firms that faced financial constraints. Furthermore, the findings showed that the tax avoidance effect on productivity was stronger in firms where managers had less control over the cash flow –i.e. dividend-paying firms–, and weaker in firms with lower quality of financial information – i.e. firms with qualified audit reports. Research implications This study contributes to the research on the economic consequences of tax avoidance by examining its impact on firm-level productivity in SMEs. From additional analyses, the findings of the study suggest that the positive effect of tax avoidance on firm productivity depends on firm size, the financial slack of the firm, and the costs of agency conflicts and information problems associated with tax avoidance. Practical implications The results of this study have implications for SMEs, suggesting that cash flows obtained through tax avoidance, if properly used, may increase firm productivity. In planning their tax avoidance practices, SME managers could take advantage of specific tax incentives designed for SMEs, which is particularly relevant given the low productivity levels of these firms. The findings also highlight the importance of maintaining high-quality information and implementing mechanisms to mitigate the agency risks associated with tax avoidance to enhance the productivity of SMEs. Social implications This study provides important insights to policymakers on SME tax policy, supporting the special tax rules for SMEs − in force in many OECD and EU countries− which aim to create an environment conducive to SME growth. The findings of the study also have macroeconomic implications, given the importance of firm productivity as a determinant of economic growth and the relevance of SMEs in most national economies. Originality/value This study provides novel empirical evidence on the effects of tax avoidance on firm-level productivity in SMEs. Despite the prevalence of SMEs as the predominant type of organization in most countries, no prior research has comprehensively examined this issue for this type of firm. This research question was addressed by considering proxies for overall, capital, and labour productivity and by examining how SME characteristics affect this relationship.
Open Access
Real Earnings Management and Information Asymmetry in the Equity Market
(2018) Abad, David; Cutillas Gomariz, M. Fuensanta; Sánchez Ballesta, Juan Pedro; Yagüe, José; Organización de Empresas y Finanzas; Facultades, Departamentos, Servicios y Escuelas::Departamentos de la UMU::Organización de Empresas y Finanzas
The literature suggests that real earnings management (REM) activities can increase adverse selection risk in capital markets. Due to their opacity and the difficulties in understanding their implications, REM strategies may increase the level of information asymmetry among investors. This paper examines the association between earnings management through real activities manipulation and information asymmetry in the equity market. To estimate the level of adverse selection risk we use a comprehensive index of information asymmetry measures proposed by the market microstructure literature. For a sample of Spanish listed firms, we find that firms’ strategies of increasing earnings through REM are associated with higher information asymmetry in those firms that meet last year’s earnings. Our findings are consistent with the hypothesis that earnings management through real activities manipulation garbles the market, enhances private information production, and exacerbates information asymmetry in the stock market
Open Access
Does IFRS Mandatory Adoption Affect Information Asymmetry in the Stock Market?
(2018) Sánchez Ballesta, Juan Pedro; Abad, David; Cutillas Gomariz, M. Fuensanta; Yagüe, José; Organización de Empresas y Finanzas; Facultades, Departamentos, Servicios y Escuelas::Departamentos de la UMU::Organización de Empresas y Finanzas
The purpose of International Financial Reporting Standards (IFRS), adopted mandatorily by European listed firms in 2005, is to increase the transparency and the comparability of accounting information, which should have led to improvements in these firms’ information environments. This study uses market microstructure proxies for information asymmetry to examine the effects of IFRS adoption on the level of information asymmetry in the Spanish stock market. Therefore, we consider a setting with substantial differences between local standards – Spanish Accounting Standards (SAS) – and IFRS and where the level of enforcement is low. By controlling for conventional determinants of information asymmetry and firms’ characteristics that influence their information environments, we find a reduction of information asymmetry after IFRS adoption. Our findings suggest that the mandatory switch from local accounting standards to IFRS conveys benefits to the market, even when the enforcement level is not strong.
Open Access
Tax avoidance and debt maturity in SMEs
(Wiley, 2024-01-30) Sánchez Ballesta, Juan Pedro; Yagüe, José; Economía Financiera y Contabilidad
We investigate how tax avoidance affects the maturity structure of debt in firms where tax avoidance costs are presumably low, namely SMEs. Previous research has shown that creditors of listed tax‐avoiding companies impose shorter maturities to more frequently reassess the tax avoidance risks in debt contracts. Using a sample of 110,690 firm‐year observations of Spanish SMEs over the period 2007–2020, we examine the relationship between tax avoidance and debt maturity and the channels driving this relationship. We find that tax‐avoiding SMEs show a longer debt maturity. This effect is stronger for SMEs with higher profitability, lower earnings management incentives, and higher reliability of financial reporting. We also find that tax avoidance reduces leverage and short‐term debt, increases future cash flows, and decreases future cash flow volatility. Overall, these findings suggest that, unlike large firms, SMEs use cash tax savings to reduce leverage and short‐term debt in their financial struc ture and that tax avoidance is positively valued by their lenders.
Open Access
Social capital and earnings management in small and medium firms
(2021-07-01) Sánchez Ballesta, Juan Pedro; Yagüe, José; Organización de Empresas y Finanzas; Facultades, Departamentos, Servicios y Escuelas::Departamentos de la UMU::Organización de Empresas y Finanzas
In this study we examine the association between social capital and earnings management in small and medium firms (SMEs). Social capital, i.e. the community’s norms and networks, may play a role as an informal and external disciplining mechanism of managers and, therefore, affect earnings management practises in small and medium firms, less subject to formal internal and external monitoring than larger firms. We implement a cross-region analysis by using a sample of Spanish SMEs and employ three measures that consider sociological and economic dimensions of social capital: an index of social capital based on economic relationships and proxies for trust and civic engagement. We find a negative association between the proxies for social capital and earnings management. Hence, our findings suggest that managers of small and medium firms headquartered in regions of higher social capital are less likely to manage reported earnings. However, our findings also reveal that the relationship between social capital and earnings management practises in private SMEs depends on firm size.
Open Access
Financial reporting incentives, earnings management, and tax avoidance in SMEs
(2020) Sánchez Ballesta, Juan Pedro; Yagüe, José; Organización de Empresas y Finanzas; Facultades, Departamentos, Servicios y Escuelas::Departamentos de la UMU::Organización de Empresas y Finanzas
This paper examines earnings management and tax aggres siveness in SMEs. First, we find a discontinuity around zero in the distribution of earnings but not in the distribution of earnings change, and provide evidence that SMEs engage in accrual and real earnings management to beat zero earn ings, to achieve a stable net income over the years, and also when in situations of financial constraints. We also find an overall negative association between income-increasing earnings management and non-conforming tax avoidance. In addition, we show that SMEs are less tax aggressive in those settings where we have previously found that they engage in upward earnings management (i.e., small profits, smoothed net income, financial constraints). This suggests that under financial reporting incentives to report higher earnings, upward earnings management clearly prevail over tax aggressiveness. On the contrary, in settings without the pressure to report higher earnings, our findings suggest that SMEs may simultaneously engage in conforming and non conforming tax avoidance to reduce taxes paid