The impact of firm characteristics on book-tax-conforming and book-tax-difference audit adjustments

Koon Hung CHAN, Lai Lan, Phyllis MO

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

Abstract

This study empirically investigates the differential impact of firm characteristics on book-tax-conforming and book-tax-difference noncompliance. Tax noncompliance is measured in terms of tax audit adjustments made by tax authorities in response to the violation of tax laws. This study decomposes the tax audit adjustments into book-tax-conforming adjustments and book-tax-difference adjustments using archival tax audit data. Based on the decomposed noncompliance, it explicitly examines the tax and nontax cost trade-off for exporters and high-tech companies when they underreport both book and tax incomes. Results indicate that export-oriented and high-tech companies, respectively, have larger book-tax-conforming adjustments but smaller book-tax-difference adjustments than domestic-market-oriented and non-high-tech-companies. The study contributes to the literature by further explaining the determinants of corporate-tax noncompliance, and is the first to provide archival evidence of tax noncompliance on such a decomposed basis. These archival evidences on noncompliance help us understand more about the incentives or disincentives for corporations to comply with tax laws. Our results also offer guidance for public policy makers, especially those in developing economies, to design their tax policies to attract foreign investment, and for tax authorities to plan more effective and efficient tax audits.
Original languageEnglish
Pages (from-to)18-34
Number of pages17
JournalJournal of the American Taxation Association
Volume24
Issue number2
DOIs
Publication statusPublished - 1 Jan 2002

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Book-tax differences
Firm characteristics
Tax
Audit adjustments
Noncompliance
High-tech companies
Authority
Audit
Guidance
Politicians
Costs
Foreign investment
Income tax
Tax policy
Developing economies
Trade-offs
Public policy
Exporters
Violations
Corporate tax

Cite this

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title = "The impact of firm characteristics on book-tax-conforming and book-tax-difference audit adjustments",
abstract = "This study empirically investigates the differential impact of firm characteristics on book-tax-conforming and book-tax-difference noncompliance. Tax noncompliance is measured in terms of tax audit adjustments made by tax authorities in response to the violation of tax laws. This study decomposes the tax audit adjustments into book-tax-conforming adjustments and book-tax-difference adjustments using archival tax audit data. Based on the decomposed noncompliance, it explicitly examines the tax and nontax cost trade-off for exporters and high-tech companies when they underreport both book and tax incomes. Results indicate that export-oriented and high-tech companies, respectively, have larger book-tax-conforming adjustments but smaller book-tax-difference adjustments than domestic-market-oriented and non-high-tech-companies. The study contributes to the literature by further explaining the determinants of corporate-tax noncompliance, and is the first to provide archival evidence of tax noncompliance on such a decomposed basis. These archival evidences on noncompliance help us understand more about the incentives or disincentives for corporations to comply with tax laws. Our results also offer guidance for public policy makers, especially those in developing economies, to design their tax policies to attract foreign investment, and for tax authorities to plan more effective and efficient tax audits.",
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The impact of firm characteristics on book-tax-conforming and book-tax-difference audit adjustments. / CHAN, Koon Hung; MO, Lai Lan, Phyllis.

In: Journal of the American Taxation Association, Vol. 24, No. 2, 01.01.2002, p. 18-34.

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

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