Authors: Mohammed Amidu; Sally Mingle Yorke
Addresses: Department of Accounting, University of Ghana Business School, P.O. Box LG 78, Legon, Accra, Ghana ' Department of Accounting, University of Ghana Business School, P.O. Box LG 78, Legon, Accra, Ghana
Abstract: The agency perspective of tax avoidance suggests a complementary relationship between tax avoidance and earnings management. Thus, this paper seeks to evaluate how the firm's financial policy affects the relationship between corporate tax avoidance (CTA) and earnings management (EM) using a sample of 119 firms from emerging and developing countries over a four-year period 2010-2013. We employ system methods of moments (GMM) and find that the financing structure of a firm plays little role on the firm's incentives to engage in avoidance activities and/or manage their earnings. The results imply that monitoring managerial diversionary behaviour by relying on external monitoring mechanism provided by debt holders does not lead to a reduction in EM associated with increased tax avoidance activities.
Keywords: earnings management; corporate tax avoidance; CTA; funding strategy; developing country; Ghana.
International Journal of Critical Accounting, 2017 Vol.9 No.3, pp.238 - 264
Received: 03 Mar 2017
Accepted: 11 Sep 2017
Published online: 11 Dec 2017 *