Do Country Characteristics Affect the Complementary Level of Financial and Tax Aggressiveness?

Nurul Aisyah Rachmawati1 (), Sidharta Utama, Dwi Martani and Ratna Wardhani
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Nurul Aisyah Rachmawati1: Department of Accounting, Trilogy University, Jl. TMP Kalibata No. 1, South Jakarta 12760, Indonesia
Sidharta Utama: Department of Accounting, Faculty of Economics and Business, University of Indonesia, Jl. Prof. Dr. Sumitro Djojohadikusumo UI Campus, Depok, West Java 16424, Indonesia
Dwi Martani: Department of Accounting, Faculty of Economics and Business, University of Indonesia, Jl. Prof. Dr. Sumitro Djojohadikusumo UI Campus, Depok, West Java 16424, Indonesia
Ratna Wardhani: Department of Accounting, Faculty of Economics and Business, University of Indonesia, Jl. Prof. Dr. Sumitro Djojohadikusumo UI Campus, Depok, West Java 16424, Indonesia

Asian Academy of Management Journal of Accounting and Finance (AAMJAF), 2020, vol. 16, issue 1, 45-62

Abstract: This study aims to examine whether two country characteristics—book-tax conformity and law enforcement—affect the complementary level of financial and tax aggressiveness. Previous studies have produced inconclusive results for the relationship between financial and tax aggressiveness. This study fills the gap by examining the country-level determinants of the complementary level of financial and tax aggressiveness. It also develops a new measure of the complementary level of financial and tax aggressiveness. Using a sample of firms from 15 countries in East Asia and Europe from 2014 to 2016, this study finds that firms from countries with higher book-tax conformity and stronger law enforcement tend to have a lower complementary level of financial and tax aggressiveness. In an additional test, this study shows that in countries with lower book-tax conformity, the effect of law enforcement on the complementary level of financial and tax aggressiveness is stronger than in countries with higher book-tax conformity. These results suggest that country characteristics influence managers’ decisions to either present financial statements and tax reporting aggressively at the same time or not.

Keywords: Complementary level of financial and tax aggressiveness; book-tax conformity; law enforcement (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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