Mark Shevlin, Gary Adamson, Ryanne Colbert, Daniel Boduszek and Philip Hyland
Daniel Boduszek, Mark Shevlin, Gary Adamson and Philip Hyland
Daniel Boduszek, Mark Shevlin, Gary Adamson and Philip Hyland
Bill B. Francis, Raffi E. García and Jyothsna G. Harithsa
This paper aims to examine how bank stress tests affect bank tax planning.
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
Keywords
Based on an extensive literature review, this chapter outlines key developments in global health and research during the last century with focus on the emergence of violence and…
Abstract
Based on an extensive literature review, this chapter outlines key developments in global health and research during the last century with focus on the emergence of violence and child maltreatment as international public health priorities. Violence has been known to humans for millennia, but only in the late 1990s was it recognised as a global public health issue. Every year, an estimated 1 billion children are exposed to trauma, loss, abuse and neglect. Child maltreatment takes a social and economic toll on countries. Research initiated in 1985 found child maltreatment to be associated with increased disease, disability and premature death in adult survivors. The global availability of data on child maltreatment is, however, sporadic with low validity and reliability. Few global experts have consulted and involved the survivors of child maltreatment, as the experts by experience, in their attempts to provide a more comprehensive picture of reality. Youth and adult survivors of child maltreatment are often traumatised by the experience, and it is important to use trauma-informed approaches to prevent re-traumatisation. Participatory and inclusive research on child maltreatment is only in its infancy. There is a need for more inclusive research, designed by survivors for survivors, hereby strengthening local capacity building and informing policymakers from the bottom up. This chapter reviews lessons learnt and provides recommendations for how to enhance the participation and inclusion of the experts by experience in research on child maltreatment.
Details
Keywords
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.
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.