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The effect of earnings management and tax aggressiveness on shareholder wealth and stock price crash risk of German companies
Journal
Journal of Applied Accounting Research
ISSN
0967-5426
Type
journal article
Date Issued
2019
Author(s)
Neifar, Souhir
Abstract
This paper examines the influence of earnings management (EM) and tax aggressiveness (TA) on shareholder wealth and on stock price crash risk (SPCR) of German companies. The sample comprises 820 firm-year observations of 188 non-financial companies listed on German stock exchanges from 2008 to 2014. We apply generalized least square panel regression to overcome autocorrelation and heteroscedasticity problems. EM and TA are not related in terms of affecting shareholder wealth and SPCR. EM has no impact on shareholder wealth but significantly affects SPCR. TA has a significant positive effect on shareholder wealth but no impact on SPCR. Thus, EM practices applied within German companies are non-opportunistic, as they do not affect shareholder wealth and decrease SPCR. TA practices are also non-opportunistic, as they increase shareholder wealth and do not affect SPCR. This study provides insights that can improve managers' accounting choices (EM vs. TA) and alleviate investor concerns about the effect of managers' manipulation strategies. Considering other variables affecting TA, such as discretionary book tax differences, may add further insights to this discussion. The analysis of and comparison with other markets may shed more light on the validity and generalizability of our results. Our investigation of the mutual impact of EM and TA on shareholder wealth and SPCR is novel, and so too is the analysis of whether EM and TA are complementary or substitute for each other in this relationship.
Language
English
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Emerald
Volume
20
Number
1
Start page
94
End page
119
Subject(s)
Division(s)
Eprints ID
255308