اثرات اتخاذ IFRS بر مشوق های ناشی از مالیات برای مدیریت سود مالی : مدارک و شواهد از یونان

We investigate whether the adoption of International Financial Reporting Standards (IFRS) in Greece affected tax-induced incentives for financial earnings management. Prior to the implementation of IFRS, there were powerful incentives for firms facing higher tax pressure to restrict (exacerbate) upward (downward) financial earnings management due to direct tax implications. IFRS adoption reduced book–tax conformity, thereby releasing financial income from tax implications. As expected, we find that tax pressure is a significant negative determinant of discretionary accruals in the pre-IFRS period. However, this effect dissipates under the new IFRS regime.

Using a sample of Greek firms, we study the potential implications of the adoption of International Financial Reporting Standards (IFRS henceforth) for book–tax conformity and its concomitant effects on tax-induced managerial opportunism. Greece provides an interesting research setting because high book–tax conformity and close links between financial income and taxable income prevailed prior to IFRS enactment. The strong interconnectedness between financial and tax reporting amplifies tax-induced incentives to restrict (exacerbate) upward (downward) financial earnings management for tax purposes. Tax-induced incentives are further encouraged by the paucity of analyst coverage (Chang, Khanna, & Palepu, 2000) and the underdevelopment of the Greek capital market relative to other European jurisdictions (La Porta, Lopez-de-Silanes, Shleifer, & Vishny, 1997). The lack of analysts' benchmarks to meet or beat, the concentrated family-ownership of Greek firms (La Porta et al., 1997 and Papas, 1992), and the low reputation costs for managers promote tax goals relative to other managerial targets.1 In addition, corporate costs of financial income manipulation are not severe due to poor monitoring mechanisms at the institutional level. Weak legal enforcement, low regulatory quality and inadequate shareholder protection are prevalent attributes of the Greek setting (Karampinis & Hevas, 2011). High book–tax conformity renders upward financial earnings management a particularly costly activity; even artificially increased financial income entails tax implications. In a similar vein, high book–tax conformity renders downward financial earnings management a potentially attractive vehicle to reduce taxes. However, these incentives are not expected to be equal across firms. On the contrary, we predict that their intensity varies depending on a firm's tax pressure. We use the term “tax pressure” to refer to a firm's ability to retain low taxes relative to its operating performance. Firms facing higher tax pressure exploit less efficiently the provisions stipulated in Greek tax law (e.g., investments in profitable associates, tax loss carryforwards, tax credits and untaxed reserves, domiciling in areas with lower tax rates) and incur increased tax outlays. Therefore, these firms may have greater incentives to restrict (exacerbate) upward (downward) financial earnings management. In these respects, the first prediction of this paper is that tax pressure constitutes a significant negative economic determinant of financial earnings management under a high book–tax conformity regime such as the pre-IFRS period in Greece. The adoption of IFRS caused an inevitable change in the interconnectedness between financial accounting and tax accounting in Greece. Because IFRS is independent of tax considerations (Hung & Subramanyam, 2007), the tax implications of financial income weakened considerably in the post-IFRS period. We argue that such relaxation in book–tax conformity renders upward financial earnings management less costly and downward earnings management less attractive for tax purposes. Therefore, the second prediction of this paper is that the aforementioned effect of tax pressure declines in the post-IFRS period. To assess these predictions, we gauge financial earnings management via abnormal discretionary accruals estimated using a Modified Jones model (Dechow, Sloan, & Sweeney, 1995) that includes return on assets (ROA) to control for operating performance (Kothari, Leone, & Wasley, 2005). In addition, we consider positive and negative discretionary accruals separately. Following prior research (e.g., Gupta and Newberry, 1997, Othman and Zeghal, 2006, Stickney and McGee, 1982 and Zimmerman, 1983), we use each firm's average effective tax rate (ETR) to measure tax pressure. In particular, we employ the ratio of the current tax expense to operating cash flows (ETRCFO) as an indicator of tax pressure; higher (lower) values of ETRCFO indicate firms with relatively higher (lower) tax pressure. According to our predictions, in the pre-IFRS period, higher tax pressure intensifies tax-induced incentives either to restrict aggressive financial reporting or to manipulate financial income downward due to high book–tax conformity.2 Furthermore, relaxations in book–tax conformity as imposed by IFRS implementation release financial accounting income from direct tax implications and attenuate the effect of tax pressure. The empirical results confirm that tax pressure exhibits a significant negative relationship with earnings management in the pre-IFRS period, regardless of the sign of discretionary accruals. This finding indicates that higher tax pressure restricts (exacerbates) upward (downward) financial earnings management. In addition, we find that IFRS adoption had an incremental positive impact on tax pressure, thereby attenuating its negative relationship with discretionary accruals. At the aggregate level, we report preliminary evidence that financial income is recognized in a more aggressive manner relative to taxable income in the post-IFRS period and thus that higher book–tax differences emerge. These results remain robust across sensitivity tests concerning the assumed discretionary accruals model and across alternative explanations. Overall, these findings suggest that high book–tax conformity and low corporate costs induce firms with higher tax pressure to manipulate their discretionary accruals accordingly. In the post-IFRS period, the reduction in book–tax conformity renders financial income independent from tax implications, leading this effect to dissipate. This paper contributes to the literature in two ways. First, we provide evidence on the consequences of changes in book–tax conformity in a financial reporting system with inadequate monitoring mechanisms. Notice that the existing empirical evidence on the effects of different levels in book–tax conformity (e.g., Ali and Hwang, 2000 and Atwood et al., 2010) is still limited. In addition, Guenther, Maydew, and Nutter (1997) and Hanlon, Maydew, and Shevlin (2008) are the only studies investigating changes in book–tax conformity in the U.S. Examining the effects of changes in book–tax conformity in a country-specific sample, rather than stable relationships in multinational samples, ensures that the rest of the institutional characteristics remain constant and provides a more powerful research setting. Furthermore, empirical research in economic contexts other than the U.S. provides new insights in the book–tax conformity literature. These inferences add to the current debate concerning pros and cons of increased book–tax conformity (see Atwood et al., 2010, Desai, 2005 and Hanlon and Shevlin, 2005). Second, we contribute to a rapidly growing literature concerning the impacts of IFRS adoption on several aspects of the financial reporting system, such as earnings informativeness (Landsman, Maydew, & Thornock, 2011), earnings persistence (Atwood, Drake, Myers, & Myers, 2011), cost of capital (Daske et al., 2008 and Li, 2010), and analysts' forecast accuracy (Byard, Li, & Yu, 2011). To the best of our knowledge, this is the first study in the IFRS literature that explores IFRS effects on book–tax conformity and tax-induced incentives for financial earnings management. Our findings suggest that a greater separation of taxable income and financial accounting income, as imposed by IFRS adoption, amplifies financial reporting aggressiveness in jurisdictions with high pre-existing book–tax conformity and low-quality monitoring mechanisms. These inferences may be extrapolated to other jurisdictions with similar characteristics that also adopt IFRS and are concerned about earnings management. In these respects, our study extends the evidence reported in Jeanjean and Stolowy (2008) that earnings management increased in France following IFRS adoption. The rest of the study proceeds as follows. Section 2 reviews past literature relevant to this study. Section 3 describes book–tax conformity in the Greek setting and the changes that occurred with IFRS adoption. Section 4 delineates our research design and presents the tested hypotheses. Empirical results are reported and discussed in 5 and 6. Section 7 addresses some additional concerns. Finally, Section 8 summarizes and concludes.

In this study, we examine the effects of changes in book–tax conformity on tax-induced incentives for financial earnings management. We use a sample of Greek firms reported under a high book–tax conformity regime prior to IFRS adoption. IFRS enactment reduced book–tax conformity and released financial income from direct tax implications. Consistent with expectations, we find that in the pre-IFRS period, tax pressure exhibits a significantly negative relationship with positive and negative discretionary accruals. In the post-IFRS period, we find that this relationship dissipates. Furthermore, we also document an incremental reaction to tax pressure for firms that succeed in meeting the previous year's earnings when they report under high book–tax conformity. Therefore, we infer that high book–tax conformity amplifies tax-induced incentives to restrict (exacerbate) upward (downward) financial earnings management for firms with higher tax pressure. Furthermore, we conclude that IFRS adoption profoundly affects tax-induced incentives for financial earnings management through the enforced separation of financial and tax reporting; a greater separation of the two systems attenuates tax-induced incentives and releases financial reporting aggressiveness. We note that an alternative explanation for these results may be a reduction in statutory tax rates occurring in the post-IFRS period. However, additional analysis of a matched sample of private firms supports our initial inferences. However, our analysis is limited to the research field of earnings management. We believe that our findings have further implications for other aspects of accounting earnings (e.g., earnings informativeness, conditional conservatism, information asymmetry) and are worthwhile subjects for future research. It is likely that the dissipation of tax-induced incentives to manipulate financial income would benefit these market attributes. For instance, empirical evidence provided by Hanlon et al. (2006), and Hanlon et al. (2008) suggests that high book–tax conformity has a negative impact on earnings informativeness. However, Karampinis and Hevas (2011) report that mandatory IFRS adoption in Greece has not improved earnings quality (measured as the value relevance and the conditional conservatism of accounting earnings) in a material way. This finding implies that relaxations in book–tax conformity may be beneficial only in settings where the other institutional factors favorably induce managers to provide high-quality accounting information. To the extent that this condition does not hold in Greece, managers may simply replace tax-induced motivations for financial income management with other opportunistic incentives.21 Despite this limitation, we believe our study makes a significant contribution to the existing literature. In particular, it adds to the still-scarce studies on book–tax conformity, because it illuminates the reaction of managerial opportunism to changes in tax implications of financial income. In addition, it provides timely insights into potential impacts of IFRS adoption in code-law countries with strong tax-orientation.22 Overall, our findings suggest that the reduction in book–tax conformity imbedded by IFRS adoption limits the influence of an important determinant of managerial opportunism with direct ramifications for financial earnings.