Tax Aggressiveness and Accounting Fraud

Clive Lennox, Petro Lisowsky, Jeffrey Pittman

Research output: Contribution to journalArticlepeer-review

Abstract

There are competing arguments and mixed prior evidence on whether firms that are aggressive in their financial reporting exhibit more or less tax aggressiveness. Our research contributes to resolving this issue by examining the association between aggressive tax reporting and the incidence of alleged accounting fraud. Relying on several proxies for tax aggressiveness to triangulate our evidence, we generally find that tax aggressive U.S. public firms are less likely to commit accounting fraud. However, we caution that our results are sensitive to how tax aggressiveness is measured. More specifically, four (two) of the five (three) proxies for firms' effective tax rates (book-tax differences) load positively (negatively) during the 1981-2001 period, implying that fraud firms are less tax aggressiveness. Our inferences persist when we isolate the 1995-2001 period in which accounting impropriety steeply rose and corporate tax compliance steeply fell. Moreover, we continue to find that tax aggressive firms are less apt to fraudulently manipulate their financial statements when we apply factor analysis to identify tax avoidance with a common factor extracted from the underlying proxies and match on propensity.

Original languageEnglish (US)
Pages (from-to)739-778
Number of pages40
JournalJournal of Accounting Research
Volume51
Issue number4
DOIs
StatePublished - Sep 17 2013

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Fingerprint Dive into the research topics of 'Tax Aggressiveness and Accounting Fraud'. Together they form a unique fingerprint.

Cite this