Measuring Tax Avoidance using Effective Tax Rate: Concepts and Implications
Keywords:
Corporate Tax Avoidance; Effective Tax Rate; Henry and Sansing Measure; Annual ETR; Long-run ETRAbstract
Lack of consensus on the multifaceted concept of tax avoidance has caused us to witness a plethora of proxies that have been developed to measure and capture tax avoidance for the purpose of empirical analysis. Therefore, this study contributes to the literature on tax avoidance as it seeks to find out the similarity or differences between tax avoidance measures, with specific emphasis on effective tax rate based measures. Conducting the ANOVA and the Games Howell multiple comparison tests on a sample of 673 unbalanced firm-year observations, the study found that there is a significant difference between the examined measures, while the Games Howell test further showed that the H & S measure differs significantly from the ETR based measures. The implication of the findings for researchers is that they are to consider their research objectives before deciding on the measure of tax avoidance to use in their study, as there are significant differences between these measures.
References
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Richardson, G.; Taylor, G. & Lanis, R. (2013). The impact of board of director oversight characteristics on corporate tax aggressiveness: An empirical analysis. Journal of Accounting and Public Policy, 32, pp. 68–88.
Salihu, I. B.; Obid, S. N. S. & Annuar, H. A. (2013). Measures of corporate tax avoidance: Empirical evidence from an emerging economy. International Journal of Business and Society, 14(3), pp. 412-427.
Salihu, I. B.; Obid, S. N. S. & Annuar, H. A. (2014). Government ownership and corporate tax avoidance: Empirical evidence from Malaysia. Book proceedings of ICETSR, Malaysia. Retrieved from www.pakinsight.com/ebooks/ICETSR.
Slemrod, J. & Yitzhaki, S. (2002). Tax avoidance, evasion and administration. Handbook on Public Economics, 3, pp. 1425-1470.
Zeng, T. (2010). Income tax liability for large corporations in China: 1998-2007. Asian Review of Accounting, 18(3), pp. 180-196.
Zimmerman, J. (1983). Taxes and firm size. Journal of Accounting and Economics, 5, pp. 119–149.
Zucman, G. (2017, November 10). How corporations and the wealthy avoid taxes (and how to stop them). The New York Times. Retrieved from https://www.nytimes.com/interactive/2017/11/10/opinion/gabriel-zucman-paradise-papers-tax-evasion.html.
Annuar, H. A.; Salihu, I. B. & Obid, S. N. S. (2014). Corporate ownership, governance and tax avoidance: An interactive effects. Procedia Social and Behavioral Sciences, 164, pp. 150-160.
Badertscher, B. A.; Katz, S. P.; Rego, S. O. & Wilson, R. J. (2016). Conforming tax avoidance and capital market pressure. Available at http://papers.ssrn.com.
Blouin, J. (2014). Defining and measuring tax planning aggressiveness. National Tax Journal, 67(4), pp. 875-900.
Boussaidi, A. & Hamed, M. S. (2015). The impact of governance mechanism on tax aggressiveness: Empirical evidence from Tunisian context. Journal of Asian Business Strategy, 5(1), pp. 1-12.
Chen, S.; Chen, X.; Cheng, Q. & Shevlin, T. (2010). Are family firms more tax aggressive than non-family firms? Journal of Financial Economics, 95, pp. 41–61.
Dunbar, A.; Higgins, D. M.; Phillips, J. D. & Plesko, G. A. (2010). What do measures of tax aggressiveness measure? 103rd Annual Conference on Taxation.
Dyreng, S.; Hanlon, M. & Maydew, E. (2008). Long-run corporate tax avoidance. The Accounting Review, 83(1), pp. 61–82.
Fitzgibbon, W. & Starkman, D. (December 27, 2017). The ‘paradise papers’ and the long twilight struggle against offshore secrecy. Retrieved from https://www.icij.org/investigations/paradise-papers/paradise-papers-long-twilight-struggle-offshore-secrecy/.
Gebhart, M. S. (2017). Measuring corporate tax avoidance: An analysis of different measures. Junior Management Sciences, 3, pp. 43-60.
Graham, J. R.; Hanlon, M.; Shevlin, T. & Shroff, N. (2014). Incentives for tax planning and avoidance: Evidence from the field. The Accounting Review, 89(3), pp. 991-1023.
Gupta, S. & Newberry, K. (1997). Determinants of the variability in corporate effective tax rates: Evidence from longitudinal study. Journal of Accounting and Public Policy, 16, pp. 1–34.
Hanlon, M., & Heitzman, S. (2010). A review of tax research. Journal of Accounting and Economics, 50, 127-178.
Henry, E. & Sansing, R. C. (2014). Data truncation bias and the mismeasurement of corporate tax avoidance. Available at http://papers.ssrn.com.
Lee, B. B.; Dobiyanski, A. & Minton, S. (2015). Theories and empirical proxies for corporate tax avoidance. Journal of Applied Business and Economics, 17(3), pp. 21–34.
Lisowsky, P.; Robinson, L. & Schmidt, A. (2013). Do publicly disclosed tax reserves tell us about privately disclosed tax shelter activity? Journal of Accounting Research, 51(3), pp. 583-629.
Nachmias, C. F. & Nachmias, D. (2009). Research methods in the social sciences. Britain: UK, Hodder Education.
Oyeleke, O.; Erin, O. & Emeni, F. (2016). Female directors and tax aggressiveness of listed banks in Nigeria. 3rd International Conference on African Development Issues (CU-ICADI).
Richardson, G.; Taylor, G. & Lanis, R. (2013). The impact of board of director oversight characteristics on corporate tax aggressiveness: An empirical analysis. Journal of Accounting and Public Policy, 32, pp. 68–88.
Salihu, I. B.; Obid, S. N. S. & Annuar, H. A. (2013). Measures of corporate tax avoidance: Empirical evidence from an emerging economy. International Journal of Business and Society, 14(3), pp. 412-427.
Salihu, I. B.; Obid, S. N. S. & Annuar, H. A. (2014). Government ownership and corporate tax avoidance: Empirical evidence from Malaysia. Book proceedings of ICETSR, Malaysia. Retrieved from www.pakinsight.com/ebooks/ICETSR.
Slemrod, J. & Yitzhaki, S. (2002). Tax avoidance, evasion and administration. Handbook on Public Economics, 3, pp. 1425-1470.
Zeng, T. (2010). Income tax liability for large corporations in China: 1998-2007. Asian Review of Accounting, 18(3), pp. 180-196.
Zimmerman, J. (1983). Taxes and firm size. Journal of Accounting and Economics, 5, pp. 119–149.
Zucman, G. (2017, November 10). How corporations and the wealthy avoid taxes (and how to stop them). The New York Times. Retrieved from https://www.nytimes.com/interactive/2017/11/10/opinion/gabriel-zucman-paradise-papers-tax-evasion.html.
Published
2020-04-30
How to Cite
Aronmwan, E. J. ., & Okaiwele, I. M. . (2020). Measuring Tax Avoidance using Effective Tax Rate: Concepts and Implications: Array. The Journal of Accounting and Management, 10(1). Retrieved from https://dj.univ-danubius.ro/index.php/JAM/article/view/199
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