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http://ssrn.com/abstract=2016166
 
 

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Tax Aggressiveness and Accounting Fraud


Clive S. Lennox


Nanyang Technological University

Petro Lisowsky


University of Illinois at Urbana-Champaign - Department of Accountancy

Jeffrey Pittman


Memorial University of Newfoundland (MUN) - Faculty of Business Administration

December 5, 2012

Journal of Accounting Research, Vol. 51 (4), 739-778, 2013

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 scores to ensure that the fraud and non-fraud samples have very similar non-tax characteristics.

Number of Pages in PDF File: 59

Keywords: accounting fraud, tax aggressiveness, effective tax rates, book-tax differences

JEL Classification: H25, M41

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Date posted: March 6, 2012 ; Last revised: November 20, 2013

Suggested Citation

Lennox, Clive S. and Lisowsky, Petro and Pittman, Jeffrey, Tax Aggressiveness and Accounting Fraud (December 5, 2012). Journal of Accounting Research, Vol. 51 (4), 739-778, 2013. Available at SSRN: http://ssrn.com/abstract=2016166 or http://dx.doi.org/10.2139/ssrn.2016166

Contact Information

Clive Lennox
Nanyang Technological University ( email )
Nanyang Business School (College of Business)
Nanyang Avenue
Singapore, 639627
Singapore
Petro Lisowsky
University of Illinois at Urbana-Champaign - Department of Accountancy ( email )
1206 South Sixth Street
Champaign, IL 61820
United States
Jeffrey A. Pittman (Contact Author)
Memorial University of Newfoundland (MUN) - Faculty of Business Administration ( email )
St. John's, Newfoundland A1B 3X5
Canada
709-737-3100 (Phone)
709-737-7680 (Fax)
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