Open AccessEffect of earnings management and deferred tax on tax avoidance: Evidence using modified Jones model algorithm
Author(s) -
John MacCarthy
Publication year - 2021
Publication title -
corporate ownership and control
Language(s) - English
Resource type - Journals
eISSN - 1810-0368
pISSN - 1727-9232
DOI - 10.22495/cocv19i1siart5
Subject(s) - tax avoidance , earnings management , deferred tax , business , leverage (statistics) , earnings , stock exchange , accounting , economics , tax reform , double taxation , public economics , state income tax , monetary economics , finance , gross income , machine learning , computer science
The paper sought to examine earnings management and deferred tax after the passage and post-adoption of the Income Tax Act, 2015 (Act 896) on tax avoidance. This paper examines the effect of earnings management and deferred tax on tax avoidance. A probability sampling technique selected twenty-four firms from 2001 to 2020 on the Ghana Stock Exchange. A quantitative research technique is used to test five hypotheses. Panel data regression is employed to predict the effect of earnings management on tax avoidance. The study revealed that earnings management and other macroeconomic variables accounted for or explained 77.9% of tax avoidance practices of the selected firms. Furthermore, the study revealed a significant and positive relationship between earnings management, deferred tax, and leverage on tax avoidance. The study finds a decrease in the values of earnings management after 2015, signifying a reduction in tax avoidance practice after the passage of Act 896. The study concludes the need to strengthen the public interest theory of regulation to bring earnings management to its lowest point. The study recommends a revision to IAS 12 as a public interest regulation to reduce the discretions to managers on deferred tax