Tax Aggressiveness and Accounting Fraud

59 Pages Posted: 6 Mar 2012 Last revised: 20 Nov 2013

See all articles by Clive S. Lennox

Clive S. Lennox

University of Southern California

Petro Lisowsky

Boston University Questrom School of Business; Norwegian Center for Taxation

Jeffrey Pittman

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

Date Written: December 5, 2012


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.

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

JEL Classification: H25, M41

Suggested Citation

Lennox, Clive and Lisowsky, Petro and Pittman, Jeffrey A., Tax Aggressiveness and Accounting Fraud (December 5, 2012). Journal of Accounting Research, Vol. 51 (4), 739-778, 2013. Available at SSRN: or

Clive Lennox

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

Petro Lisowsky

Boston University Questrom School of Business ( email )

595 Commonwealth Avenue
Ste. 518H
Boston, MA 02215
United States
6173532661 (Phone)

Norwegian Center for Taxation ( email )

Helleveien 30
Bergen, Bergen 5045

Jeffrey A. Pittman (Contact Author)

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
709-737-3100 (Phone)
709-737-7680 (Fax)

Register to save articles to
your library


Paper statistics

Abstract Views
PlumX Metrics

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information