Book-tax Differences as an Indicator of Earnings Management and Tax Avoidance: An Analysis in the G-20 Countries

Géssica Cappellesso, Jomar Miranda Rodrigues


Objective: The aim of this study was to empirically examine whether book-tax differences (BTD) is an indicator of earnings management and tax avoidance in G-20 countries.
Method: This research analyzed 22 countries between 2006 and 2016 and applied Tang’s (2014) model, which aims to evaluate the association between BTD, earnings management (EM), tax avoidance (TA) and its interaction term (EMxTA). This model was applied in each country individually and for the G-20 as one using panel data adjusted by fixed effects.
Originality/Relevance: BTD is considered a proxy capable of indicating EM and TA since the difference between book income and taxable income may arise due to these manipulations. Nevertheless, few studies evaluated this association empirically, especially in several countries simultaneously. Therefore, this research contributes to the theme by presenting empirical evidence on this relationship in an international context.
Results: It was observed a positive and significant association between BTD and TA in all countries, either individually or in the G-20. However, EM was significant and positive only in some countries individually, but not jointly in the G-20. Finally, most countries and the G-20 had a positive association between BTD and the interaction term (EMxTA).
Theoretical/Methodological contributions: Evidence implies that BTD can be often considered a proxy for detecting TA and EM. This contributes to the accounting literature as it presents empirical evidence corroborating the theory. Besides, this study is relevant to a scarcely studied area which is the way TA and EM are performed, i. e., whether there is a trade-off between these manipulations or if they are performed simultaneously.


Book-tax Differences; Earnings Management; Tax Avoidance


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