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Article
Publication date: 12 November 2024

Bill B. Francis, Raffi E. García and Jyothsna G. Harithsa

This paper aims to examine how bank stress tests affect bank tax planning.

249

Abstract

Purpose

This paper aims to examine how bank stress tests affect bank tax planning.

Design/methodology/approach

The study uses US bank stress test bank size thresholds and a regression discontinuity design to investigate the effect of the Dodd-Frank Act and the instituted bank stress tests on bank tax planning. We use different measures of tax planning, including bank-specific measures and measures of tax avoidance, tax aggressiveness, and effective tax planning from recent literature. Our regression discontinuity and difference-in-differences regression analyses include bank and year fixed-effects and lagged bank characteristics to control for potential endogeneity.

Findings

This study finds that stress tests have the unintended consequences of intensifying tax planning and increasing tax avoidance. Stress-test banks increase tax avoidance by accelerating charge-offs, net interest, and non-interest expenses. However, this increase in tax planning is not optimally maximized, leading to lower effective tax planning compared to non-stress-test banks. Banks with a substantial increase in tax avoidance under the Dodd–Frank Act tend to increase their risk, investing in high-risk-weight assets and lending in riskier loan categories. These findings are consistent with tax minimization conditions under added regulatory attention and policy uncertainty.

Originality/value

Literature on bank tax planning is limited. Most tax avoidance literature excludes financial institutions such as bank holding companies mainly due to differences in business practices and regulatory frameworks. This study is the first to investigate tax planning behavior among US banks. The current study thus extends the research field by examining the effect of bank transparency regulations, such as bank stress tests, on bank tax planning activities. Our findings have a direct bank policy implication. They show that stress testing has the unintended consequences of increasing tax planning activities and consequently increasing risk-taking on banks with high tax avoidance, which goes against the goals of stress testing regulations.

Details

China Accounting and Finance Review, vol. 27 no. 1
Type: Research Article
ISSN: 1029-807X

Keywords

Available. Open Access. Open Access
Article
Publication date: 10 October 2024

V.P. Priyesh and Lukose P.J. Jijo

This study examines the earnings quality of private-subsidiary firms using a large sample data from India.

406

Abstract

Purpose

This study examines the earnings quality of private-subsidiary firms using a large sample data from India.

Design/methodology/approach

The impact of parent–subsidiary relationship on earnings quality is examined using two common proxies. Findings are robust to alternative research designs, including different earnings quality proxies, endogeneity and matching techniques.

Findings

The study finds that private firms that are subsidiaries of listed firms tend to have lesser (greater) earnings quality (manipulation). Further, the study reports that this relationship is more pronounced when the parent firm is relatively larger than the subsidiaries. The study finds no evidence that Big 4 affiliation of the parent company improves earnings quality among private subsidiaries; instead, it exacerbates earnings manipulation in some cases. Finally, the authors document that subsidiary firms use tax management, as proxied by book tax differences, to engage in income-increasing earnings manipulation.

Research limitations/implications

This study examines how affiliation with a listed entity as a subsidiary impacts the earnings quality of private companies. Future research could investigate the financial reporting practices of both private subsidiary firms and standalone private firms, comparing them in similar or differing regulatory environments across various countries.

Practical implications

The findings of this study will help investors, bankers, creditors and regulators to understand the financial reporting of private firms. The study calls for enhanced audit quality at the subsidiary level by making the auditor of the parent firm responsible for auditing a subsidiary, a practice that is currently absent in India.

Originality/value

The results contribute to the existing debate on how firms manage earnings using data of private firms in a large emerging market setting. Previous research has not paid enough attention to the earnings quality of private subsidiaries. The study also emphasizes the necessity for a more robust system of governance and supervision for private firms, particularly in India and generally in other countries.

Details

China Accounting and Finance Review, vol. 27 no. 1
Type: Research Article
ISSN: 1029-807X

Keywords

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Article
Publication date: 25 February 2025

Polly Gregory and Susannah Colbert

Links between trauma and psychosis have been well evidenced. Trauma has been proposed to underlie psychotic experiences, with the trauma model of psychosis suggesting psychotic…

1

Abstract

Purpose

Links between trauma and psychosis have been well evidenced. Trauma has been proposed to underlie psychotic experiences, with the trauma model of psychosis suggesting psychotic experiences represent forms of trauma-related distress. As such, traumatic experiences can be seen symbolised in the content of psychosis experiences. Despite this, Community Mental Health Teams (CMHTs) predominantly operate within a medicalised model, where trauma and trauma-informed care are often neglected. Therefore, staff training was delivered on the trauma model of psychosis and trauma-informed care. This study aims to assess whether the training would improve knowledge and attitude in working with trauma and whether the training would improve staff recognition of the connections between the content of psychosis and previous trauma.

Design/methodology/approach

The training consisted of an online 1-h session, with measures of trauma-informed care (knowledge and attitude) and trauma-psychosis links (symbolism questionnaire) collected pre- and post-training. The training was open to all 115 staff in the CMHTs, 53 attended, however, only 23 completed both pre- and post-measures.

Findings

Wilcoxon signed-rank tests revealed significant differences in pre- and post-performance on both the trauma-informed care and symbolism questionnaire. Findings showed in this sample that the training improved knowledge and attitude in trauma-informed care and staff ability to recognise connections between trauma and psychotic experiences.

Originality/value

A novel symbolism questionnaire was designed for this evaluation. The findings extend the literature, as they show that staff were more accurate in recognising the specific underlying trauma to the psychosis content following training.

Details

Mental Health Review Journal, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1361-9322

Keywords

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Article
Publication date: 19 February 2025

Antonios Persakis and Ra’fat Jallad

This study aims to address a research gap by examining the relationship between CEO power, board strength and earnings quality in Gulf Cooperation Council (GCC) countries, a…

8

Abstract

Purpose

This study aims to address a research gap by examining the relationship between CEO power, board strength and earnings quality in Gulf Cooperation Council (GCC) countries, a region with distinctive economic and governance characteristics. It explores how governance mechanisms impact financial reporting in a context marked by significant corruption challenges and regulatory dynamics. The paper underscores the relevance of the GCC setting because of its unique blend of rapid economic reform, policy shifts toward diversification and evolving governance frameworks influenced by Islamic principles.

Design/methodology/approach

This study uses 5,030 firm-year observations from GCC countries over the period 2003–2022. To test the study’s hypotheses, the authors apply the System Generalized Method of Moments.

Findings

The study reveals a significant negative correlation between perceived corruption and earnings quality, with higher corruption leading to lower earnings quality. It finds that CEO power further diminishes earnings quality and intensifies corruption’s negative effects on financial reporting while strong board governance positively affects earnings quality and reduces the adverse impact of corruption.

Originality/value

By focusing on the GCC – a region undergoing significant regulatory reforms and policy changes – this study enriches the discourse on earnings quality within emerging markets. It provides novel insights into how corruption, CEO power and board strength interact to influence financial reporting quality, offering actionable implications for policymakers and stakeholders navigating these unique economic and governance landscapes.

Details

Journal of Financial Reporting and Accounting, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1985-2517

Keywords

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Article
Publication date: 19 February 2025

Emmanuel Mamatzakis and Eric Owusu Boahen

In this paper, the authors opt for an identification strategy to examine the moderating impact of the institutional environment on the association between modern slavery and…

15

Abstract

Purpose

In this paper, the authors opt for an identification strategy to examine the moderating impact of the institutional environment on the association between modern slavery and financial reporting quality, as measured by classification shifting and real earnings management around the world.

Design/methodology/approach

Using panel data between 2010 and 2018, the authors perform various analyses and robustness tests on a sample consisting of 134, 205 firm-year observations in 63 countries.

Findings

The results, which are robust, show a positive association between modern slavery and expense misclassification and real activities earnings management, confirming that the institutional environment facilitates prolonged and endless concealment of unethical and illegal business practices. In addition, we find that the quality of the legal environment moderates illegal modern slavery practices, unethical expense misclassification and real activities earnings management. The negative impact is more pronounced in a strong legal environment than in a weak legal environment. Our results are robust after controlling for the impact of auditing, including financial auditors, social auditing, corporate social responsibilities, environmental, social and governance score and corporate governance.

Research limitations/implications

The study’s findings are limited to a lack of modern slavery data prior to 2010. In addition, some of the variables examined are studied at the firm level, while other variables are at the state or county level. Finally, the study establishes an association between the variables of interest, and this does not necessarily imply causation.

Social implications

The findings have several important social, practical, policy, practitioner and regulatory implications for all types of countries and businesses. First, senior and corporate management committed to socially responsible reporting should intensify their momentum to deal with modern slavery risks and practices in their supply chains. Second, auditors and external monitoring agencies should strengthen their social and financial audits to uncover hidden modern slavery crimes and illicit financial benefits. Third, regulators and governments around the world should mandate laws and severe sanctions against illegal and illegitimate modern slavery practices. Fourth, the internal governance mechanism should be strengthened and modern slavery reporting, sustainability reports and social audits should be enforced and made compulsory in the governance section of the annual report.

Originality/value

The study provides novel evidence of the impact of modern slavery practices on financial reporting quality in an institutional environment. Our study contributes to the ongoing policy debate by showing how institutional and legal environments influence firms’ behaviour regarding modern slavery and financial reporting. The findings reveal the importance of robust regulatory frameworks and ethical auditing practices in curbing modern slavery and promoting transparency. As firms continue to navigate these challenges, strengthening institutional and ethical standards could play a key role in reducing illegal and unethical practices, ultimately contributing to better financial transparency and accountability on a global scale.

Details

Journal of Accounting Literature, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0737-4607

Keywords

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Article
Publication date: 27 September 2024

Mosa Abdelgelil Amin, Eman Mohamed Abdelmaged, Awad Elsayed Ibrahim and Tarek Abdelfattah

This study aims to investigate the relationship between Chief Executive Officer (CEO) characteristics and audit report lag (ARL) in Egypt, an emerging economy characterized by…

727

Abstract

Purpose

This study aims to investigate the relationship between Chief Executive Officer (CEO) characteristics and audit report lag (ARL) in Egypt, an emerging economy characterized by high power distance and a culture of secrecy. The study utilizes a theoretical framework that integrates agency theory, stewardship theory, and upper echelons theory as the foundation for examining this relationship.

Design/methodology/approach

The sample consists of 587 firm-year observations from non-financial firms listed on the EGX100, covering the period from 2012 to 2019. The primary variable of the study (ARL) is measured using different proxies. The analysis utilizes both Ordinary Least Squares (OLS) and logistic regression models, with additional analysis considering CEO power and using board gender diversity as a moderating variable.

Findings

The study finds that CEO characteristics significantly affect ARL, demonstrating a negative association between CEO ownership, founder status, family ties, duality and ARL. These findings remain robust after a series of tests using alternative measures. Additional analysis reveals that CEO power is negatively and significantly related to ARL. Interestingly, the negative association between CEO characteristics and ARL is more pronounced in boards without female members.

Originality/value

Although extensive research has been conducted on the factors determining ARL, few studies have examined the impact of CEO characteristics on ARL, particularly in emerging economies such as Egypt. The business environment in Egypt is characterized by high power distance and a secretive culture, providing a unique context for this study.

Details

International Journal of Accounting & Information Management, vol. 33 no. 1
Type: Research Article
ISSN: 1834-7649

Keywords

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Article
Publication date: 8 July 2024

Saoussen Boujelben and Nermine Medhioub

This paper aims to investigate the impact of combined assurance on tax avoidance in South Africa.

178

Abstract

Purpose

This paper aims to investigate the impact of combined assurance on tax avoidance in South Africa.

Design/methodology/approach

This study is founded on a sample of 76 South African firms listed on the Johannesburg Stock Exchange over the 2014–2022 period. The authors used the feasible generalized least squares regression estimation technique to test the hypothesis. To address endogeneity issues, this study conducted a difference-in-differences (DID) analysis based on propensity score matching.

Findings

The results reveal that combined assurance negatively impacts tax avoidance. Implementing combined assurance, as an integrated risk management approach, significantly minimizes tax risk. The DID analysis provides well-founded evidence attributing the decline in tax avoidance levels to the availability of combined assurance. The inferences are robust to using alternative measures of tax avoidance, testing combined assurance impact across various tax avoidance levels and controlling for the COVID-19 effect.

Practical implications

This study presents valuable insights for firms, managers and policymakers. The findings encourage companies to bolster their risk management practices, opting for combined assurance over a sole risk monitoring mechanism. This approach enables the company to ensure better compliance with tax regulations, thereby enhancing overall efficiency. Besides, the disciplining effect of combined assurance motivates managers to make informed decisions, avoid tax avoidance strategies and safeguard corporate reputation. Moreover, this research calls upon policymakers to promote effective global regulatory frameworks for combined assurance practices.

Originality/value

The research brings original insights by exploring the influence of combined assurance on tax avoidance. This addresses a gap in the current literature that has predominantly focused on the relationship between tax avoidance and individual lines of defense.

Details

Corporate Governance: The International Journal of Business in Society, vol. 25 no. 2
Type: Research Article
ISSN: 1472-0701

Keywords

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