Publication: Financial reporting incentives, earnings management, and tax avoidance in SMEs
Authors
Sánchez Ballesta, Juan Pedro ; Yagüe, José
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Facultades, Departamentos, Servicios y Escuelas::Departamentos de la UMU::Organización de Empresas y Finanzas
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Publisher
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DOI
https://doi.org/10.1111/jbfa.12519
1468-5957
1468-5957
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info:eu-repo/semantics/article
Description
©2020. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
This document is the Accepted version of a Published Work that appeared in final form in Journal of Business Finance and Accounting (JBFA). To access the final edited and published work see https://doi.org/10.1111/jbfa.12519
Abstract
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
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Citation
Journal of Business Finance and Accounting (JBFA)
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