Table 1 Summary of selected studies on tax avoidance and earnings management

Dhaliwal et al. (2004)

USA 1986–1999

4656 firm-year observations

Internal Revenue Service, Compustat and I/B/E/S

Y: change in ETR

X: EM, measured as accruals (total accruals scaled by pre-tax book income) or deferred tax (deferred tax expense scaled by pre-tax income)

Both measures of EM (accruals and tax deferred) positively affect the change in ETR

Frank et al. (2009)

USA 1991–2005

49,886 firm-years (8100 firms)

Compustat

Y: tax reporting aggressiveness (several measures)

X: aggressive financial reporting, measured as discretionary accruals (Jones model with lagged return-on-assets -Kothari et al. (2005))

Positive relationship between accounting aggressiveness and tax aggressiveness

Blaylock et al. (2012)

USA 1993–2005

12,585 observations

Compustat and Center for Research in Security Prices (CRSP) database

They study the most aggressive companies: those with higher BTD with positive sign and those with low ETRs (using a long-term cash taxes paid for 5 years)

EM, measured as discretionary accruals (Jones model with lagged return-on-assets -Kothari et al. (2005))

The most tax aggressive companies incur more practices of EM and tax avoidance

Goh et al. (2013)

USA 2000–2010

2539–4513 firm-year observations

Audit Analytics, Compustat, I/B/E/S, and Thomson Reuters databases

Y: tax aggressiveness (not ETR)

X: EM (several proxies)

Positive relationship between EM and tax aggressiveness

Kim and Zhang (2016)

USA 1999 to 2009

32,898 firm–year observations

Compustat and CRSP database

Y: tax aggressiveness (several measures)

X: EM, measured as discretionary accruals (performance adjusted modified cross-sectional Jones model)

EM positively affects tax aggressiveness

Kubick and Masli (2016)

USA 1994–2012

13,532 observations

Compustat and Execucomp databases

Y: tax aggressiveness (not ETR)

X: EM, measured as discretionary accruals (calculated following Frank et al. (2009))

EM positively affects tax aggressiveness

Richardson et al. (2016)

China 2005–2010

1,242 firm-years

China Stock Market and Accounting (CSMAR) and Sinofin databases

Y: tax avoidance: two ETR measures and two book–tax gap (BTG) measures

X: EM, measured as discretionary accruals (modified Jones model from Dechow et al. (1995))

Accruals positively affect both measures of ETR, but not other measures of tax avoidance (BTG)

Guenther et al. (2017)

USA 1987–2011

Between 4456 and 32,023 firm-years

CRSP/Compustat merged database from 1987 to 2011

Y: tax avoidance (several measures)

X: EM, measured as discretionary accruals (modified Jones model from Dechow et al. (1995))

EM negatively affects total tax expense (GAAP_ETR) and cash taxes paid (CASH_ETR), but not other measures of tax avoidance (Long-Run ETR, Discretionary Permanent Book-Tax Differences [DTAX], Unrecognised Tax Benefit [UTB])

Tang et al. (2017)

China 1999–2006

5201 firm-year observations

CSMAR database

Y: tax avoidance: modified ETR (ratio ETR to statutory tax rate [STR]) and BTD

X: EM, measured as discretionary accruals (Jones model modified by Dechow et al. (1995))

Accruals positively affect both measures of tax avoidance

Kałdoński and Jewartowski (2020)

Poland 2005–2017

1149 firm-year observations

Capital IQ database

Y: tax avoidance, measured as difference between average industry-size matched GAAP_ETR and the firm's GAAP_ETR

X: real EM, calculated following the models proposed by Roychowdhury (2006)

EM positively affects GAAP_ETR (EM negatively affects tax avoidance)

Wang and Mao (2021)

China 2003–2015

9,428 firm-year observations

CSMAR database

Y: tax avoidance, two BTG measures and two ETR measures

X: EM calculated following the models proposed by Roychowdhury (2006)

EM negatively affects tax avoidance