Firm Characteristics, Earnings Management, Tax Amnesty, and Firm Value (study in Indonesia public listed companies)
DOI:
https://doi.org/10.47312/aar.v6i2.339Abstract
This research provided two analyses: (1) whether the firm characteristics and earnings management practices might influence the amount of tax amnesty's assets presented in the financial statement; and (2) whether the amount of tax amnesty's assets influenced the firm value. There are 86 observations obtained from Indonesian public listed companies that participate in the tax amnesty program during 2016 – 2017. This research used multiple regression to conduct each analysis. The results showed that a company with a high level of earnings management discloses more tax amnesty's assets. The result also showed that the higher the tax amnesty's assets, the lower the firm value would be. These results showed that a company that conducting earnings management utilise tax amnesty as a haven for avoiding political costs, but on the other side, the tax amnesty disclosure regarded by an investor as an act of confessions of past tax sins. Moreover, these results might contribute to the new insight into tax practices in global business.
Downloads
References
Adu, A.B. Rashid, M. and Stebbins, M., (1992), ‘Capital gains tax and equity values: Empirical test of stock price reaction to the introduction and reduction of capital gains tax exemption’, Journal of Banking & Finance, Vol. 16, No. 2, pp. 275-287.
Agustina, L. Gunawan, Y. Chandra, W. (2018) ‘The Impact of Tax Amnesty Announcement towards Share Performance and Market Reaction in Indonesia’, Accounting and Finance Research, Vol. 7 No. 2, pp. 39 – 47.
Ahmed, K and Goodwin, J., (2007) ‘An Empirical Investigation of earnings restatements by Australian firms’. Accounting and Finance, Vol. 47 Iss. 1, pp. 1-22.
Ali, S. M., Salleh, N. M., & Hassan, M. S. (2008). Ownership structure and Earnings Management in Malaysia Listed Companies. Asian Journal of Business and Accounting, 1(2), 89-116
Alm, J. Vazquez, J.M. and Wallace, S. (2009) ‘Do tax amnesties work? the revenue effects of tax amnesties during the transition in the Russian Federation’, Economic Analysis and Policy, Vol. 39 No. 2, pp. 235 – 253.
Anderson, R., Mansi, S., Reeb, D., (2004). ‘Board characteristics, accounting report integrity, and the cost of debt’, Journal of Accounting and Economics, Vol. 37, pp. 315-342.
Armstrong, C., Blouin, J.L., Jagolinzer, A.D. and Larcker, D.F. (2015) ‘Corporate governance, incentives, and tax avoidance’, Journal of Accounting and Economics, Vol. 60, pp.1–17.
Atwood, T., Drake, M., Myers, L., 2010. Book-tax conformity, earnings persistence, and the association between earnings and cash flows. Journal of Accounting and Economics 50, 111-125.
Austin, C.R., and Wilson, J.R., (2017) ‘An Examination of Reputational Costs and Tax Avoidance: Evidence from Firms with Valuable Consumer Brands’, The Journal of the American Taxation AssociationVol. 39, No. 1, pp. 67-93.
Ayers, B., Jiang, X., Laplante, S., 2009. Taxable income as a performance measure: the effects of tax planning and earnings quality. Contemporary Accounting Research Vol. 26, pp. 15-54.
Badertscher, B.A., Katz, S.P. and Rego, S. O. (2013) ‘The separation of ownership and control and corporate tax avoidance’, Journal of Accounting and Economics, Vol. 5, pp.228–250.
Baer, Katherine, and Eric LeBorgne, 2008. Tax Amnesties: Theory, Trends, and Some Alternatives. International Monetary Fund, Washington, DC.
Balliet, D., and Van Lange P.A.M., (2013) ‘Trust, punishment, and cooperation across 18 societies’, Perspectives on Psychological Science, 8 pp. 363-379.
Barrios, J.M., Lisowsky, P., and Minnis, M. (2019) ‘Measurement Matters: Financial Reporting and Productivity' available online at https://www.hbs.edu/faculty/conferences/2019-imo/Documents/Minnis%20paper%20updated.pdf accessed on July 1st, 2019.
Bayer, R.C. Oberhofer, H., and Winner, H. (2015) ‘The occurrence of tax amnesties’, J. of Public Economics, Vol. 125 No. 1, pp. 70-82.
Beyer, A., D. Cohen, T.L, Walther, B. (2010 ‘The Financial Reporting Environment: Review of the Recent Literature’, Journal of Accounting and Economics Vol.50, pp. 296-343.
Bowe, M. and Domuta, D. (2004). ‘Investor Herding during Financial Crisis: A Clinical Study of the Jakarta Stock Exchange’, Pacific-Basin Finance Journal Vol. 12, No. 1, pp. 387–418.
Brahmana, R.K., Hooy, C.W., & Ahmad, Z. (2012). ‘Psychological factors on irrational financial decision making. Humanomics’, Vol. 28, No. 4, pp. 236–257
Buckwalter, N.D. Sharp, N.Y. Wilde, J.H., and Wood, D.A. (2013) ‘Are state tax amnesty programs associated with financial reporting irregularities?’, Public Finance Review, Vol. 00 No. 0, pp. 1 – 26.
Cahyono, H. (2017) ‘Abnormal Return Differences Before And After Amnesty Tax Policy 2016-2017 Period II And III (Event Study at Company divided in LQ45 Index)’, IJEBD (International Journal Of Entrepreneurship And Business Development), 1(1), pp. 39–74.
Campbell, S. (2007) ‘Risk and the Subjectivity of Preference’, Journal of Risk Research, Vol. 9 No. 3, pp. 225-242
Christensen, D. M., Dhaliwal, D. S., Boivie, S. and Graffin, S. D. (2015), ‘Top management conservatism and corporate risk strategies: Evidence from managers' personal political orientation and corporate tax avoidance’, Strat. Mgmt. J., Vol. 36, pp. 1918-1938.
Clemente-Almendros, J., and Sogorb-Mira, F. (2018) ‘Costs of debt, tax benefits and a new measure of non-debt tax shields: examining debt conservatism in Spanish listed firms’, Revista de Contabilidad, Vol. 21, Iss 2, pp.162-175
Das-Gupta, A. and D. Mookherjee, 1996, Tax amnesties as asset-laundering devices, Journal of Law, Economics & Organization, Vol. 12, No.2, pp.408-431.
Dechow, P., Dichev, I., 2002. The quality of accruals and earnings: The role of accrual estimation errors. The Accounting Review 77, 35-59.
Dechow, P., Schrand, C., 2004. Earnings quality. The Research Foundation of CFA Institute.
Dechow, P., Ge, W., 2006. The persistence of earnings and cash flows and the role of special items: Implications for the accrual anomaly. Review of Accounting Studies 11, 253-296.
Dechow, P.M., W. Ge, and Schrand, M.C. (2010) “Understanding Earnings Quality: A Review of the Proxies, Their Determinants, and Their Consequences." Journal of Accounting and Economics, Vol. 50, pp. 344–401.
Dechow, P. M., Hutton, A. P., Kim, J. H. and Sloan, R. G. (2012), Detecting Earnings Management: A New Approach. Journal of Accounting Research, Vol. 50, pp. 275-334.
Desai, M.A. and Dharmapala, D. (2006) ‘Corporate tax avoidance and high powered incentives’, Journal of Financial Economics, Vol. 79 No. 1, pp.145–179.
Dvořák, T. (2005), Do Domestic Investors Have an Information Advantage? Evidence from Indonesia. The Journal of Finance, Vol. 60, pp. 817-839.
Dyreng, S., Hanlon, M. and Maydew, E. (2008) ‘Long-run corporate tax avoidance’, Accounting Review, Vol. 83, pp.61–82.
Erickson, M., Hanlon, M., Maydew, E., 2004. How much will firms pay for earnings that do not exist? Evidence of taxes paid on allegedly fraudulent earnings. The Accounting Review 79, 387-408.
Farrar, J. and Hausserman, C. (2016). An Exploratory Investigation of Extrinsic and Intrinsic Motivations in Tax Amnesty Decision-Making. Journal of Tax Administration, Vol 2, No.2, available online at https://pdxscholar.library.pdx.edu/busadmin_fac/47/
Farida, A. (2018), ‘Dilema Opsi dalam PSAK 70 tentang Akuntansi Tax Amnesty (Dillema of SFAS 70 concerning Accounting for Tax Amnesty)', Moneter: Jurnal Akuntansi, Manajemen, dan Perbankan, Vol. 5, Iss. 1, pp. 53 – 56.
Feller, A. and Schanz, D. (2017), ‘The Three Hurdles of Tax Planning: How Business Context, Aims of Tax Planning, and Tax Manager Power Affect Tax Expense’, Contemp Account Res, Vol. 34, No. 1, pp. 494-524.
Frankel, R., and Litov. L. 2009. Earnings persistence. Journal of Accounting and Economics Vol. 47, pp. 182–190.
Gerger, G.C. (2012) ‘Tax Amnesties And Tax Compliance In Turkey’, International Journal of Multidisciplinary Thought, Vol. 2, No. 3, pp. 107–113.
Gordon, R.H., and Lee Y. (2001), ‘Do taxes affect corporate debt policy? Evidence from U.S. corporate tax return data’, Journal of Public Economics Vol. 82, pp. 195-224.
Gupta, S., Mills, L.F., and Towery, E.M., (2014), ‘The Effect of Mandatory Financial Statement Disclosures of Tax Uncertainty on Tax Reporting and Collections: The Case of FIN 48 and Multistate Tax Avoidance’, The Journal of the American Taxation Association, Vol. 36, No. 2, pp. 203-229.
Hanlon, M. (2003), ‘What Can We Infer About a Firm’s Taxable Income from its Financial Statements?', available online at https://www.brookings.edu/wp-content/uploads/2012/04/20030506_hanlon.pdf. Accessed on July 1st, 2019.
Hanlon, M. and Heitzman, S. (2010) ‘A review of tax research’, Journal of Accounting and Economics, Vol. 50, pp.127–178.
Harding, M.K., (2017) The Impact of Increased Tax Return Reporting on financial Statement Tax Disclosure Quality: Evidence from IRS Schedule UTP. Doctoral dissertation from The University of Tennessee Knoxville, available online at https://trace.tennessee.edu/cgi/viewcontent.cgi?referer=http://trace.tennessee.edu/cgi/viewcontent.cgi?article=5769&context=utk_graddiss&httpsredir=1&article=5769&context=utk_graddiss. Accessed at June 28th, 2019.
Hofmann, E., Gangl, K., Kirchler, E., and Stark, J. (2014) ‘Enhancing tax compliance through coercive and legitimate power of tax authorities by concurrently diminishing or facilitating trust in tax authorities’, Law & Policy, 36, pp. 290-313.
Ibrahim, M.A., Myrna, R., Irawati, I., and Kristiadi, J.B. (2017). ‘A Systematic Literature Review on Tax Amnesty in 9 Asian Countries’, International Journal of Economics and Financial Issues, Econjournals, vol. 7 is. 3, pp. 220-225.
Ibrahim, M. A., Myrna, R., Irawati, I., & Kristiadi, J. B. 2018. Tax Policy in Indonesian Energy Sectors: An Overview of Tax Amnesty Implementation.International Journal of Energy Economics and Policy, Vol. 8, Iss. 4, pp. 234-236.
Ivkovich, Zoran, James Poterba, and Scott Weisbenner. (2005) "Tax-Motivated Trading by individual Investors."American Economic Review, Vol. 95, No. 5, pp. 1605—1630.
Jones, S. 2012. Principles of Taxation for Business and Investment Planning 14th edition. New York: McGraw Hill.
Jones, S. and Catanach, S.R. (2016) Principles of Taxation for Business and Investment Planning, McGraw Hill: New York
Junpath, S.V. Kharwa, M.S.E. & Stainbank, L.J. (2016) ‘Taxpayers’ attitudes towards tax amnesties and compliance in South Africa: an exploratory study’, South African Journal of Accounting Research, Vol. 30 No. 2, pp. 97-119
Kenyon, T. (2008) ‘Tax Evasion, Disclosure, and Participation in Financial Markets: Evidence from Brazilian Firms’, World Development, Vol. 36 No. 11, pp. 2512 – 2525.
Kim, J. B., Li, Y., & Zhang, L. (2011). Corporate tax avoidance and stock price crash risk: Firm-level analysis. Journal of Financial Economics 100(3):639–662.
Kim, C., and Zhang, L. (2016), ‘Corporate Political Connections and Tax Aggressiveness’, Contemp Account Res, Vol. 33, pp. 78-114.
Koanantachai, R. (2013). Tax Aggressiveness, Corporate Governance, And Firm Value: An Empirical Evidence From Thailand. Unpublished Master Thesis from Thammasat University, Thailand.
Kusumawati, L., and Sawarjuwono, T. (2019) ‘Individual Taxpayers Compliance in Policy of Post Tax Amnesty Program: Phenomenology Study’, International Journal of Advances in Scientific Research and Engineering, Vol. 5, Iss. 5, pp. 28 – 43.
Lisowsky, P., Robinson, L. And Schmidt, A. (2013), Do Publicly Disclosed Tax Reserves Tell Us About Privately Disclosed Tax Shelter Activity?. Journal of Accounting Research, 51: 583-629.
Loney, Saralyn, (2015) "Corporate Leverage and Taxes around the World". All Graduate Plan B and other Reports. https://digitalcommons.usu.edu/gradreports/474
Malherbe, J. (2011). Tax Amnesties. Amsterdam, The Netherlands: Kluwer Law International BV.
Martins, A. (2012) ‘Thin capitalization and its practical application in Portugal: A note’, International Journal of Law and Management, Vol. 54 No. 4, pp.274−283.
Minnick, K. and Noga, T. (2010) ‘Do corporate governance characteristics influence tax management?’ Journal of Corporate Finance, Vol. 16 No. 5, pp.703−718.
Mulford, C. and E. Comiskey (2002) The Financial Numbers Game: Detecting Creative Accounting Practices. New York: Wiley
Nar, M. (2015). The Effects of Behavioral Economics on Tax Amnesty. International Journal of Economics and Financial Issues, 5(2), 580-589.
Natania, E.S, and Davianti, A. (2018) ‘An Accounting Perspective of Tax Amnesty in Indonesia’, Journal of Accounting Auditing and Business, Vol. 1 No. 1, pp. 1-18.
Nekhili, M. and Cherif, M. (2011) ‘Related parties transactions and firms’ market value: the French case’. Review of Accounting and Finance, Vol. 10 Iss. 3, pp. 291–315.
Nor, J.M., Ahmad, N., and Saleh, N.M. (2010), ‘Fraudulent financial reporting and company characteristics: tax audit evidence’, Journal of Financial Reporting and Accounting, Vol. 8 No. 2, pp. 128-142.
Oei, R., Ramsay, A. and Mather, P. (2008), Earnings persistence, accruals, and managerial share ownership. Accounting & Finance, 48: 475-502.
Penman, S.H. and Zhang, X-J. (2002) Accounting Conservatism, the Quality of Earnings, and Stock Returns. The Accounting Review: April 2002, Vol. 77, No. 2, pp. 237-264.
Pertiwi, T., Yuniningsih, Y & Anwar, M. (2019). The biased factors of investor's behavior in stock exchange trading. Management Science Letters, Vol. 9, No. 6, pp. 835-842.
Prakoso, Imam. ‘Value Relevance Analysis Of Deferred Tax: ASEAN Perspective',. Jurnal Keuangan Dan Perbankan, [S.L.], Vol. 16, No. 2, Available At: Https://Perbanas.Id/Jurnal/Index.Php/Jkp/Article/View/193. Date Accessed: 18 July 2019.
Pratama, A. (2017) ‘Company characteristics, corporate governance, and aggressive tax avoidance practice: a study of Indonesian companies', Review of Integrative Business and Economics Research, Vol. 6 No. 4, pp.70–81.
Pratama, A. (2018). ‘Determinants of Indonesian Public Listed Companies to Participate in the Tax Amnesty’. Indonesian Journal of Sustainability Accounting and Management, 2(2), 136–152.
Pratama, A. (2019). ‘Analysis of Tax Amnesty Disclosures, Tax Avoidance, and Firm Value’. Indonesian Journal of Contemporary Accounting Research, 1(1), 136–152.
Rego, S. (2003) ‘Tax avoidance activities of U.S. multinational corporations’, Contemporary Accounting Research, Vol. 20 No. 4, pp.805−833.
Richardson, S., Tuna, I., Wysocki, P., 2009. Accounting anomalies, fundamental analysis, and returns to investment strategies. Survey paper, Journal of Accounting and Economics Conference.
Rinaldi, Rinaldi (2017) ‘Dampak Tax Amnesty Terhadap Laporan Keuangan Dan Pengaruhnya Kepada Nilai Perusahaan (Impact of Tax Amnesty Toward Financial Statements and Firm Value)’. ADHUM (Jurnal Penelitian dan Pengembangan Ilmu Administrasi dan Humaniora), Vol. 7, Iss.1. pp. 33-43.
Robinson, L.A and Schmidt, A.P. (2013) ‘Firm and Investor Responses to Uncertain Tax Benefit Disclosure Requirements’, The Journal of the American Taxation Association, Vol. 35, No. 2, pp. 85-120.
Sadaka, M and Ciptani, M.K. (2017) ‘The Analysis of Recognition, Measurement, Presentation, and Disclosure of Assets arisen from Tax Amnesty Program in Indonesia (Study Case in PT. XYZ)’, Journal of Applied Accounting and Finance, Vol. 1, No. 2, pp. 72 – 90.
Said, E.W. (2017) ‘Tax Policy in Action: 2016 Tax Amnesty Experience of the Republic of Indonesia’, Laws, Vol. 6 No. 4, pp. 1- 9.
Said, L. (2018) ‘Implementation of Tax Amnesty and Its Impact on Indonesia Economics’, Reports on Economics and Finance, Vol. 4 No.1, pp. 45 – 56.
Sari, D, and Anggraeni, F.A. (2015) ‘Fiscal Correction Effect to Commercial Financial Statements for Corporate Income Tax’ Journal of Economics, Business, and Management, Vol. 3, No. 5, pp. 532 – 537.
Sari, R. I. & Nuswantara, D. A. (2017). The Influence of Tax Amnesty Benefit Perception to Taxpayer Compliance. Jurnal Dinamika Akuntansi, Vol. 9, No. 2, pp. 176-183.
Schipper, K., Vincent, L., 2003. Earnings Quality. Accounting Horizons 17 (Supplement), 97-110.
Seetharaman, A., Sun, Y., & Wang, W. (2011). ‘Tax-Related Financial Statement Restatements and Auditor-Provided Tax Services’, Journal of Accounting, Auditing & Finance, Vol 26, No. 4, pp. 677–698.
Shackelford, D.A (2000) ‘Stock Market Reaction to Capital Gains Tax Changes: Empirical Evidence from the 1997 and 1998 Tax Acts’, Tax Policy and the Economy, Vol.14 No.1 pp. 67 – 92.
Suhari, E., Trinugroho, I., Rahardian, R., & Ivada, W. (2011). Psychographic and Investor Behavior in Indonesia. Interdisciplinary Journal of Contemporary Research in Business, Vol. 2, No.11. pp. 296 – 302.
Taylor, G. and Richardson, G. (2013) ‘The determinants of thinly capitalized tax avoidance structures: Evidence from Australian firms’, Journal of International Accounting, Auditing, and Taxation, Vol. 22, pp.12– 25.
Tondkar, R.H., Achilles, W.W. and van der Laan Smith, J. (2005) ‘Transfer pricing practices and regulatory actions in the U.S. and U.K.: A cross-country comparison and analysis’, Advances in International Accounting, Vol. 18, pp.199−217.
Towery, E. (2017) ‘Unintended Consequences of Linking Tax Return Disclosures to Financial Reporting for Income Taxes: Evidence from Schedule UTP’, The Accounting Review, Vol. 92, No. 5, pp. 201-226.
Waluyo (2017) ‘Tax Amnesty and Tax Administration System: An Empirical Study in Indonesia’, European Research Studies Journal, Vol. XX, issue 4B, pp. 548-556.
Wang, X. (2010) Tax Avoidance, Corporate Transparency, and Firm Value. Working Paper. Available at SSRN: http://ssrn.com/abstract=1904046.
Wang, C., Wilson, R.J., Zhang, S., and Zou, H. (2018) ‘Political Costs and Corporate Tax Avoidance: Evidence from Sin Firms’ Available at SSRN: https://ssrn.com/abstract=3034635
Wibowo, Buddi. (2010). ‘Price Manipulation in Indonesian Capital Market: Empirical Analysis on Stockbroker's Behavior and Interaction Pattern between Domestic Investors and Foreign Investors’, Indonesian Capital Market Review, Vol. 2, No. 1, pp 63-71.
Widodo, A. and Darmanto, B. (2017) ‘Reaction of Indonesian Capital Market Investors to the Implementation of Tax Amnesty’, Journal of Finance and Banking, Vol. 21 No. 4, pp. 597 – 608.
Wild, J. J., & Subramanyam, A. (2011). Financial Statement Analysis, 11th ed. McGraw-Hill: New York, NY.
Winarso, W., & Panday, R. (2018). Impact Implementation Of Psak 70 Related To Tax Amnesty On Reporting Of The Firm (Case Study On Cv Btari Senja). Jurnal Manajemen Bisnis, Vol. 9, No. 1, pp. 25-35.
Yustiari, S.H. (2016) ‘Tax Amnesty Dalam Perspektif Good Governance (Tax Amnesty in the perspective of good governance)’, Jurnal Ilmiah Administrasi Publik, Vol. 2 No. 4, pp. 169 – 174.
Zhang, Q., Cai, C., Keasey, K., (2013) ‘Market reaction to earnings news: A unified test of information risk and transaction costs’, Journal of Accounting and Economics, Vol. 56, pp. 251-266.
Downloads
Published
Issue
Section
License
Authors who publish with this journal agree to the following terms:Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).
