Journal of Commerce and Accounting Research

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

A Review on Transparency in Financial Reporting and its Effects on Tax Avoidance and Firm Value


Affiliations
1 Qazvin Branch, Department of Accounting, Qazvin, Iran, Islamic Republic of
2 Qazvin Azad University, Qazvin, Iran, Islamic Republic of
     

   Subscribe/Renew Journal


Tax avoidance, which results in a reduction in outgoing cash flows from the firm to the government, has long been considered as a value by shareholders. The general overview on tax avoidance indicates that the opportunistic managers, who seek to avoid tax payments, are using opacity in their financial reporting as a means to take financial advantages and mainly toward their own personal interests too. Transparency in financial reporting results in ease of supervision for shareholders on the performance of managers. Also, opportunistic managers use other methods and techniques to pay lesser tax which will cause the owners of the firms to bear certain costs. To shed light on the viewpoints about the disagreement between shareholders and managers, I have used the opacity criteria in financial reporting as well as different scales to measure tax avoidance in order to analyze how corporate transparency relates to tax avoidance. The hypotheses suggest that tax avoidance is negatively associated with corporate transparency and firm value. These analyses have been based on the financial data obtained from 100 listed companies in the Tehran Stock Exchange from 2002 to 2010 employing the multiple linear regression method.  

The results suggest that there is a negative meaningful relationship between tax avoidance and corporate transparency and also firm value.


Keywords

Corporate Transparency, Tax Avoidance, Firm Value.
Subscription Login to verify subscription
User
Notifications
Font Size


  • Aksu, M., & Kosedag, A. (2006). Transparency and Disclosure Scores and Their Determinants in The Istanbul Stock Exchange. Working paper.

  • Balakrishnan, K., Blouin, J., & Guay, W. (2011). Does Tax Aggressiveness Reduce Financial Reporting Transparency? Working paper.

  • Biddle, G. C., Hilary, G., Verdi, R. S. (2009). How Does Financial Reporting Quality Relate to Investment Efficiency.Working paper.

  • Bushman, R. M., Piotroski, J. D., & Smith, A. J.(2004). What determines corporate transparency? Journal of Accounting Research, 42, 207-252.

  • Bushman, R. M., & Smith, A. J. (2001). Financial accounting information and corporate governance. Journal of Accounting and Economics,32, 237-333.

  • Crocker, K., & Slemrod, J. (2005). Corporate tax evasion with agency costs. Journal of Public Economics,89, 1593-1610.

  • Chen, D., Mocker, M., Preston, D. S., & Teubner, A. (2010). Information System Strategy: Reconceptualization, Measurement, and Implications. MIS Quarterly, 34(2), 233-259.

  • Desai, M. A., & Dharmapala, D. (2006). Corporate tax avoidance and high-powered incentives. Journal of Financial Economics, 79, 145-179

  • Desai, M. A., & Dharmapala, D. (2007). Corporate Tax Avoidance and Firm Value. Working paper.

  • Francis, J., LaFond, R., Olsson, P., & Schipper, K.(2005). The market pricing of accruals quality. Journal of Accounting and Economics, 39, 295-327

  • Hanlon, M., & Heitzman, S. (2009). A Review of Tax Research. Working paper. Massachusetts Institute of Technology.

  • Hanlon, M., & Slemrod, J. (2009). What does tax aggressiveness signal? Evidence from stock price reactions to news about tax shelter involvement. Journal of public Economics, 93, 126-141

  • Hanlon, M., & Slemrod, J. (2007). What Does Tax Aggressiveness Signal? Working paper.

  • Hunton, J. E., Libby, R., & Mazza, C. R. (2004). Financial Reporting Transparency and Earning Management. Working paper.

  • Lung, M., & Maffett, M. (2010). Transparency and Liquidity Uncertainty In Crisis Periods. Working paper.

  • Lung, M., & Maffett, M.(2011). Transparency, Liquidity and Valuation. Working paper.

  • Li, F., & Shroff, N. (2010).Financial Reporting Quality and Economic Growth. Working paper.

  • Mazar, A., VakiliFard, T., Lorgani, S. (2011). The relation between financial reporting transparency and tax reporting in Iran. Journal of Accounting Research, 3(9), 22-37.

  • Mazar, A., VakiliFard, T., Lorgani, S. (2011). The effects of tax reporting on financial reporting transparency. Journal of Accounting Research, 3(9), 67-83.

  • Price, R., Roman, F., & Rountree, B. (2006). Governance Reform, Share Concentration and Financial Reporting Transparency in Mexico. Working paper.

  • Rego, S.O.,& Wilson, R. (2008). Executive compensation, tax reporting aggressiveness, and future firm performance. Working paper.

  • Rego, S. O. (2003). Tax Avoidance activities of U.S multinational corporations. Contemporary Accounting Research, 20, 805-833

  • Zimmerman, J. (1983). Taxes and firm size. Journal of Accounting and Economics, 5, 119-149.


Abstract Views: 803

PDF Views: 3




  • A Review on Transparency in Financial Reporting and its Effects on Tax Avoidance and Firm Value

Abstract Views: 803  |  PDF Views: 3

Authors

Farzin Rezaei
Qazvin Branch, Department of Accounting, Qazvin, Iran, Islamic Republic of
Mohsen Ghanaeenejad
Qazvin Azad University, Qazvin, Iran, Islamic Republic of

Abstract


Tax avoidance, which results in a reduction in outgoing cash flows from the firm to the government, has long been considered as a value by shareholders. The general overview on tax avoidance indicates that the opportunistic managers, who seek to avoid tax payments, are using opacity in their financial reporting as a means to take financial advantages and mainly toward their own personal interests too. Transparency in financial reporting results in ease of supervision for shareholders on the performance of managers. Also, opportunistic managers use other methods and techniques to pay lesser tax which will cause the owners of the firms to bear certain costs. To shed light on the viewpoints about the disagreement between shareholders and managers, I have used the opacity criteria in financial reporting as well as different scales to measure tax avoidance in order to analyze how corporate transparency relates to tax avoidance. The hypotheses suggest that tax avoidance is negatively associated with corporate transparency and firm value. These analyses have been based on the financial data obtained from 100 listed companies in the Tehran Stock Exchange from 2002 to 2010 employing the multiple linear regression method.  

The results suggest that there is a negative meaningful relationship between tax avoidance and corporate transparency and also firm value.


Keywords


Corporate Transparency, Tax Avoidance, Firm Value.

References