Accounting conservatism and firm value in Egypt: the mediating role of tax avoidance

Yousra R. Obiedallah () and Asmaa Hamdy Abdelaziz Mohamed El Mahdy ()
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Yousra R. Obiedallah: Sohag University
Asmaa Hamdy Abdelaziz Mohamed El Mahdy: October University for Modern Sciences and Arts

Future Business Journal, 2025, vol. 11, issue 1, 1-15

Abstract: Abstract Purpose This paper examines the mediating effect of the firm’s tax-avoidance strategies on the relationship between a firm’s conservative practices and its firm value. Design/methodology/approach This study employs the Difference Generalized Method of Moments (GMM) to address endogeneity issues when testing empirical models. C-Score measures accounting conservatism, while cash effective tax rate (Cash-ETR) assesses tax avoidance practices. Additionally, Tobin’s Q (TQ), return on equity (ROE), and return on assets (ROA) serve as proxies for the firm’s value. To strengthen the results of the three mediating GMM regression models, alternative deferred tax and current effective tax rate measures are utilized for tax avoidance. The study sample comprises 64 non-financial firms listed on the Egyptian Stock Exchange (EGX 100) from 2014 to 2023. Findings The results show a positive direct effect of conservative firm practices on the firm value, partially mediated by the indirect effect of tax avoidance techniques. Research limitations/implications Policymakers should strengthen the enforcement of International Financial Reporting Standards to reduce earnings manipulation while allowing lawful taxation without imposing excessive burdens on businesses, thus decreasing their tendency toward tax evasion. Originality/value This study is the first to explore empirically the mediating function of tax avoidance practices in the association between conditional accounting conservatism (proxied by C-Score) and firm value (proxied by TQ, ROA, ROE). Further, this study distinctly enhances knowledge by providing new insights to managers and policymakers into the interplay between conservative accounting practices and tax avoidance strategies within the tax regulations in the Egyptian context.

Keywords: Tax avoidance; Conditional conservatism; Firm value; Generalized method of moments (GMM); EGX 100 (search for similar items in EconPapers)
JEL-codes: C1 H26 L25 M41 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1186/s43093-025-00600-z

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