Concentrated Ownership and Tax Planning

8/13/2019 Concentrated Ownership and Tax Planning

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Kode: CG

CONCENTRATED OWNERSHIP AND TAX PLANNING

Evony Silvino Violita

Fa !lta" E ono#i $nive%"ita" Indone"ia

A&"t%a't

This paper investigates the impact of concentrated ownership as one of corporate

governance factors on tax planning. This research fills in the gap of literature about

external concentration ownership and tax management. It finds that firms with high

concentrated ownership (H3>75 ! that have no tax loss carr"forward tend to have

more negative discretionar" accruals since it has lower financial report cost# while there

is no evidence that firms with low and medium concentrated ownership have negativediscretionar" accruals. There is marginal evidence that high debt$to$total asset ratio

influence the effect of concentrated ownership positivel". %nother findings is that firms

with highl" and moderate concentrated ownership are motivated to have lower income

since it has low mar&et pressure. However# we cannot conclude that the low ownership

concentration firms have motivation to have positive discretionar" accruals.

Keywords: corporate governance# concentrated ownership# tax planning# discretionar"

accruals


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I( INTROD$CTION

)( *a' +%o!nd

Concentrated Ownership is believed as one factor that can solve agency problem, an

important aspect in corporate governance. Agency problem appears as the difference

objectives between owners and agent. Concentrated ownership is the condition that a few

owners have large portion of interest in a firm. By having large interest, larger

shareholders can monitor the firm more easily and closely and it can limit the

management from doing things inefficiently. Good monitoring will restrict the manager s

cons!mption of non"pec!niary items #$ensen and %ec&ling, '()*+. arge investors can

then lead management to ma&e policy according to owners objectives rather than the

managers objectives.

-he impact is that it leads to higher val!e of the firm, and in t!rn, it increases the

owners wealth. Claessens #'(()+ arg!es that concentrated ownership can increase the

firm val!e. rom the description, we may interpret that better monitoring and lower

agency problem are associated with more concentrated ownership #Claessens '(()+.

/t!dies in 0nited /tate mar&et find a positive relation between concentrated ownership

and corporate val!ation #1eAngelo and 1eAngelo, '(23, /hleifer and 4ishny, '(2*+.

5owever, that relationship does not ta&e place in every sit!ation. arge investors

may represent their own interests which not need coincide with the interest of other

investors, employees, and managers #/chleifer and 4ishny, '(()+. -he large investors

may ta&e decision or lead the management to ta&e decision that is beneficient for them

#large investors+, b!t not for minority shareholders. arge owners may have higher

potential to do e6propriation of minority shareholders. 7t may ca!se the lower val!e of

firm. %oreover, ma6imi8ing reported income sometimes is not the optimal strategy

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#/hac&elford and /hevlin, 9 '+. 7ncreasing income often means increasing ta6 sho!ld be

paid to the o!tside party.

%inimi8ing ta6 may not be the best strategy either. %inimi8ing ta6 payment is

!s!ally followed by lower reported income which may bring abo!t negative impact to

mar&et price, and in t!rn, the investors; wealth. -here are trade"off of cost and benefit for

both the strategies, performance in one hand and cash flow in another hand.


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e6ternal #investor+ ownership concentration and ta6 planning. 7nvestor ownership

concentration can be a good way to represent mar&et press!re beca!se it tells !s the

p!blic portion of the interest. -he higher the p!blic portion, the wider the owners, it is

li&ely the higher the mar&et press!re of a firm.

7t capt!res the possibility that management may choose to decrease income rather

than to increase income in their ta6 planning as the mar&et press!re is decreasing. arge

investors can have information easily other than financial reported income, so they &now

the ?tr!e@ performance of the firm and they do not really ?care@ abo!t the information

reported.

,( Re"ea%'- O&.e'tive"

-he objectives of this paper are:

1. to investigate the relationship between concentrated ownership with ta6 plan

2. to compare whether the relationship of concentrated ownership and the ta6 plan is

different for firm with high debt.

=. to investigate whether firm with large ownership concentration has different

effect on the ta6 plan compare to those with non"large concentrated ownership.

/( Re"ea%'- Cont%i&!tion"

-his paper is e6pected to contrib!te to fill"in the gap of literat!re abo!t the relationship

of ownership concentration as a factor of corporate governance and ta6 management. -he

findings will give evidences on how the ownership concentration infl!ences the direction

of ta6 management. 5ence, related parties s!ch as government, a!ditors, and ta6

a!thority can predict the behavior of firms on ta6 compliance. or the capital mar&et

reg!lator, they will &now what aspects may be !sed by firms with concentrated


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ownership to manage their income. 7t can be !sed to improve capital mar&et reg!lation in

order to avoid earnings management that misleading mar&et.

-he reminder of the paper proceeds as follows: /ection 77 reviews the related

literat!re. /ection 777 develops hypothesis and model to estimate the hypothesis. /ection

74 presents the data, methodology, and empirical test. /ection 4 describes the res!lts

and concl!sion, as well as rob!stness test. /ection 47 presents the interpretation of the

res!lt as well as analysis and concl!sion.

II( THEORETICAL FRA0EWORK

)( La%+e Inve"to%" 1Con'ent%ated O2ne%"-i34

Agency relationship engages principal#s+ and agent to perform some service on their

behalf which involves delegating some decision ma&ing a!thority to the agent #$ensen

and %ec&ling, '()*+. 7t allows agent #managers+ to do things that is not informed to

principals #stoc&holders+. 7t ca!ses a possibility for managers to ma&e decision that

ma6imi8e their own interest rather than the principals interest. -he managers also

cannot, or prefer not to, f!lly reveal their ability and or the ?tr!e@ val!e of firm to the

stoc&holders thro!gh the limited comm!nication channel available #Klassen, '(()+. 7t is

necessary for stoc&holders to e6pend monitoring cost to ma&e s!re that managers ma&e

decision for the owners ma6im!m wealth, to handle the agency problem.

%onitoring in concentrated ownerhips firm wo!ld be nat!rally closer than a

widely"owned firm. Klassen #'(()+ states that the closely"held firms can inform

shareholders of the firm s val!e more efficiently thro!gh comm!nication channels other

than a!diting financial report or press releases. arge shareholders also have power to

e6ec!te their decision and governing their firm thro!gh e6ercising voting rights. Beside

those benefits, large ownership creates costs. arge investors may represent their own

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interest that may not coincide with interest of other investors #minority+, employees, and

managers #/hleifer and 4ishny, '(()+. arge investors are potentially to do e6propriation

to minority interest.

Based on the positive impact of concentrated ownership on monitoring, it leads

managers to ma&e decision inline with the owners objectives.


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press!re.

Eegarding the level of ownership concentration, %orc&, /hleifer, and 4ishny

#'(22+ find a reverse 0"shape effect of ownership concentration effect on firm val!e and

profitability. -here is an incentive"entrenchment trade"off for ownership concentration

case #/t!lts, '(22+. %anagement will be motivated to increase firm performance and

ownership concentration is getting higher, b!t if the ownership concentration is very

large it is easier for large owners to e6propriate the minority interest.

5owever, for firms with large debt from ban& and or large investment sponsored

by ban&, management sho!ld consider the monitoring thro!gh the debt covenant or direct

monitoring by ban&. 1ebt covenant !s!ally involves maintaining high financial

performance which in t!rn affect the ta6able income. Claessens, 1jan&ov, and ohl

#'(()+ investigate the direct control from ban& to especially high ownership

concentration to increase corporate governance in the firm and to increase the val!e of

the firm. 5igh control from ban& can decrease the conflict of interest of agency problem.

/( Hy3ot-e"i" Develo3#ent

Closely"held firms face low mar&et press!re, so it is less costly for s!ch firms to

have low income and ta6able income #Klassen, '(()+. ?-ransitory@ component of

income that is independent from period to period can be !sed to do earnings management

to decrease ta6 payment. As high ownership"concentration firm is closely monitored by

stoc&holders and in t!rn has low mar&et press!re, it is li&ely the management of earnings

will be larger. 1iscretionary accr!al is manageable component of earnings. 1iscretionary

c!rrent accr!als then can be !sed to meas!re the ta6 management.

Hy3ot-e"i" ) : irms with high ownership concentration tend to have more negative

discretionary c!rrent accr!als.

Ban& can actively manage a firm thro!gh the debt covenant and or the agreement

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in f!nd sponsored for the firm. irms s!ppose to maintain good performance to ens!re

that the money borrowed can be paid bac& as well as the interest. Claessens, 1jan&ov,

and ohl #'(()+ find that direct control e6ec!table by ban& increases the corporate

governance in a firm and in t!rn have a positive association with val!ation of firm.

Hy3ot-e"i" , : 5igh 1ebt of a firm moderating the ownership concentration impact on

the discretionary c!rrent accr!als.

As %orc&, /hleifer, and 4ishny #'(22+ find that the ownership concentration

have a 0"shape in its effect on firm profitability, it is possible that it is done thro!gh the

management of earnings that might be motivated by red!cing ta6 payment. 7t is related to

/t!lts #'(22+ finding that there is incentive"entrenchment trade"off e6ist in ownership

str!ct!re. As the motivation for partic!lar level of ownership concentration, the myopic

behavior may be different for each level.

Hy3ot-e"i" / : -he discretionary c!rrent accr!al is higher for high ownership

concentration compare to low ownership concentration.

6( Co#3etin+ t-eo%y


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CACC it is calc!lated following $ones #'(('+:

! /IT0 /)T1(//. ! /cash(//. -.%.. it it it it it it . or firm i time t, CACC it is

c!rrent accr!als, A it"' is lagged total assets, /A F/ is change in sales, and it is error

term, CA is change in c!rrent assets, cash is change in cash, C is change in c!rrent

liabilities, /-1 is change in short"term portion of long"term debt, 7- is change in

income ta6 payable. /-1 and 7- are removed beca!se these items are not directly

related to ta6able income #Din, 9 +. -he parameter of e>!ation #'+ # i+ is then !sed to

estimate discretionary c!rrent accr!als as the different between reported c!rrent accr!als

and fitted val!e of e>!ation #'+.

! %)%*+) ( b %.%.. - 1.% iiiiii B B #9+

!ation

#9+ is then !sed as dependent variable in the hypothesis model #e>!ation and 3+.

)()( O2ne%"-i3 'on'ent%ation

Ownership concentration !ses 5erfindahl inde6 of the largest = owners interest to

meas!re the ownership concentration. 7t is consistent with the finding of %orc&, /hleifer,

and 4ishny #'(22+ that the ownership concentration has 0"shape effect on profitability

and firm val!e. 5erfindahl 7nde6 is calc!lated thro!gh the form!la below #%ichelini and

icford, '(23+:

=

'

9

i

i) - H3 #=+

/i is percentage interest owned by each invetors. -he same pro6y is !sed by Claessens

#'(()+ and Claessens, 1jan&ov, and ohl #'((*+ for ownership concentration

meas!rement.

/ince average five largest owners in 7ndonesia is reaching more than )3 , this

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research !se = largest ownership rather than 3 as commonly !sed by other researchers.

Another pro6y commonly !sed is the percentage of largest three investors that will be

!sed as the rob!stness test. Other factors sho!ld be considered to infl!ence the

discretionary c!rrent accr!als to be !sed in the models are disc!ssed below.

)(,( Tax

-a6 is incl!ded in the model as a pro6y for marginal ta6 rate. -he magnit!de of accr!als

is infl!enced by corporate ta6 rate. Din #9 + mentions that firms are constrained by

their ta6 planning abilities to minimi8e ta6 cost as well as !sed by Klassen #'(()+ in

his her model. 5owever, Din !ses ta6 aggresiveness meas!rement while Klassen !ses a

d!mmy indicator to capt!re the marginal ta6 rate. -he pro6y to !se for this ta6 indicator

is a d!mmy variable, ' if there were net operating losses carryforward and a pre"ta6 loss

in the prior year, otherwise.

)(/( Debt Covenant

1ebt"to"Asset ratio has been !sed in prior research as the control to debt covenant

restriction. irms are willing not to violate the debt covenant. 7f the firm has a high val!e

of debt"to"e>!ity ratio, it is li&ely for the firm to have positive c!rrent accr!als to

increase its income and in t!rn its ta6able income. As this variable is !sed to compare

high and low level of debt covenant, this variable is !sing d!mmy which is ' if the debt

is reaching 9 or more, otherwise. Claessens, 1jan&ov, and ohl #'((*+ !se

investment f!nded by ban& as alternative theory, b!t beca!se lac& of data and debt

covenant can be a good tool to capt!re ban& control, debt"to"asset is then !sed in this

research.

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)(6( Past Profitability

!ation will be diffic!lt #Klassen, '(()+. EOF is !sed in the model to control for

differences in past profitability. !rthermore, the performance in the past will infl!ence

the ta6 management in c!rrent period. 7t can represent what Din #9 + !ses as earning

press!re. -he past performance in this paper is meas!red !sing the average ret!rn on

e>!ity year t"= to t"' #9 "9 *+

)( 8( Firm Size

irm si8e play important role in earnings management as well. arger firm are s!bject to

political costs #


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with !nivariate regression model and then is tested by f!ll m!ltivariate model.

2. 3(3- 1.% ': # +

'2)*

3A=9': BB

e( 456 b( *7T%b( 82+ 2. b

( 82+ b( % 12. b( % 1b(2. b( 194T%: b(a- 1.%i

#3+

where for observation i, 1CA i is 1iscretionary c!rrent accr!als as estimated by e>!ation

#=+, 10%-AI i is 1!mmy of ta6 marginal ret!rnJ ' if there were net operating losses

carryforward and a pre"ta6 loss in the prior year, OC i is Ownership Concentration !sing

5erfindahl 7nde6, 1 A i is 1!mmy debt"to"total assets, ' if long"term debt total assets is

.9 or more, EOF i is Eet!rn on F>!ity, defined as average of = prior period EOF #t"= to

t"'+ to capt!re past profitability, -A i is at!ral logarithm of total asset, %B4 i is

%ar&et"to"boo& val!e ratio, mar&et capitali8ation boo& val!e of e>!ity for the prior year

#mar&et capitali8ation is mar&et price L o!tstanding common stoc&s+.

-his model is e6pected to represent the estimation for hypothesis ' and 9.

5ypothesis = is estimated !sing the same model b!t there will be partition of = gro!p of

low ownership concentration # M 3 +, moderate ownership concentration #3 " )3 +

and large ownership concentration #N)3 +.

,( Re"!lt E"ti#ation

-a6 hypothesis predicts that firms with positive ta6able income have greaterincentive to manage ta6able income to red!ce ta6 payment. 7t then predicts

10%-AI coefficient to be negative.

Hy3ote"i" ) predicts that firms with highly ownership concentration tend to red!ce

ta6able income as lower financial reported cost. 5ence, the b 9 is predicted to be

negative.

Common theory provide evidence that high debt leads to close control by ban&, so the

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higher the debt, the management tends to increase firm performance. -he coefficient

of is 1 A #b =+ predicted to be positive.

7nteraction of ownership concentration #OC+ and 1 A is incl!ded to test the

-y3ot-e"i" , that high debt"to"total asset ratio infl!ence the effect of ownership

concentration in opposite way. b is then predicted to be positive.

%anagement tends to smooth the income from year to year. 5igh performance in the

past tend to ca!se high performance earning management in the c!rrent period. -hen

we can predict the coefficient of EOF #b 3+ as positive.

-here is a possibility that EOF infl!ence the effect of ownership concentration. /ince

there is no strong evidence find the common effect, we cannot predict the sign of the

coefficient b *. Klassen #'(()+ also face the same case and choose not to predict the

coefficient.

7f the mar&et"to"boo& val!e is high, it is li&ely that manager will increase the f!t!re

income to avoid bad news to the mar&et. -he coefficient of %B4 #b ) + is then

predicted to be positive.

5ypothesis = is predicted by comparing coefficient b 9 among the three level of

ownership concentration. -he coefficient is predicted to have different sign, negative

for large ownership concentration and positive for low and moderate level of

ownership concentration. 7t relates to the hypothesis of mar&et press!re. arge

ownership concentration is believed to have low mar&et press!re, then s!ch the firm

will be motivated to have lower income #have negative direction of earnings

management+.

/ince this paper !ses simple ordinary least s>!are regression for a cross"sectional data,

there sho!ld be test of O / ass!mption violation to do. Ass!mption violation tests to

cond!ct are normality test, heteroscedasticity test, m!lticolinearity test, and

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a!tocorrelation test.

/( Data and Sa#3le

-his research is cond!cted to observe the stoc& traded in 7ndonesian /toc& F6change,

cross sectional for year 9 ). -he firm to !se in sample sho!ld be listed f!lly d!ring

9 9 to 9 ) to ma&e s!re that the firms involved have already been mat!re and stable in

the capital mar&et and incl!de all ind!stries e6cept financial related ind!stries s!ch as

ban&ing, ins!rance, financing, etc.

rom 99) firms listed in 7ndonesian /toc& F6change, we get ')= observation after

ded!cting by =* !navailable data and '2 o!tlier.

)( Ro&!"tne"" Te"t

Eob!stness test is done to s!pport the res!lt of basic research and to anticipate another

direction possibility. -he rob!stness test will be cond!cted by '+ 0se total percentage of

the largest three investors rather than 5erfindahl inde6 and 9+ 0se d!mmy variable to test

hypothesis = rather than doing partition of the three levels of ownership concentration.

-he model for the test p!rpose is:

')3()33:2)*3

A=9': BB

e( 1;( 1;( 456 ;( *7T%;( 82+ 2. ;

( 82+ ;( % 12. ;( % 1;( 194T%: ;(a- 1.% i

#*+

1 3 ")3 is firms with largest = ownership is between 3 " )3 , 1 )3 for ownership

N)3 .

IV( RES$LT AND ANAL SIS

)( De"'%i3tive Stati"ti'"

1escriptive statistics at table ' shows that the average ownership concentration for the

largest three ownerships is ** , while the largest five is ) . arge standard deviation

is occ!rred for long term debt and mar&et total assets. rom this view of point, we can

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see that firms have large deviation. 7n t!rn, it will infl!ence the nat!re and the

environment of the firms. Conse>!ently, it is necessary to be aware on this sit!ation in

analy8ing the res!lt. or this research, the data were divided into three category in order

that we can classify observation into similar nat!re. -his is also the reason why the

minim!m and ma6im!m val!e is still in a wide range eventho!gh the o!tliers are already

ta&en o!t.

-able .9. shows that there is no significant m!lticolinearity problem is fo!nd in the

sample, e6cept between interaction variables of OC and debt to total assets or past

profitability #EOF+ and its related variables. -his is a conse>!ence of having interaction

variables. 5owever it is still lower than ,2, then we can !se this in model.

,( Hy3ot-e"i" E5a#ination

,()( Re"!lt ;o% All Data

rom the table .= of univariate and multivariate models, both res!lt in non"significant

correlation between ownership concentration and the discretionary accr!als. 7t tells !s

that, overall, ownership concentration cannot e6plain the discretionary accr!als. 7n other

words, we cannot see the effect of ownership concentration on the discretionary accr!als.

rom the res!lt !nivariate correlation between si8e #total assets+ compare to

discretionary accr!als, there is no fig!re shows the correlation between the two variables

#correlation between -A and 1CA is , , and the p"val!e N , 3 for !nivariate

model+. 0sing m!ltivariate model, the res!lt does not show different res!lt, there is no

significant infl!ence of ownership concentration on discretionary accr!als #p"val!e is

,'(=+. 5ence, we can say that there is no evidence abo!t the relationship between the

ownership concentration and discretionary accr!al.

-hs res!lt is consistent with with the finding of %orc&, /hleifer, and 4ishny

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#'(22+ that the effectiveness of the ownership concentration in monitoring the

management is a reverse 0"shape effect. 5ence, we cannot see the relationship !sing the

whole observations. -he res!lt is then not interpreted either.

,(,( Re"!lt ;o% "e3a%ated data

-he e6amination is then contin!ing to test the hypothesis !sing the classification

of level of ownership concentration #model #3++, which is the main model of this

research. or this p!rpose, sample is divided into three parts, i.e. observation with

ownership concentration 3 , 3 ")3 , and N)3 .

-able . . shows that there is no significant evidence of the e6pectation for sample with

ownership concentration below 3 , while the res!lt meets the e6pectation is occ!rred

for observation with ownership concentration is higher than )3 #highly concentrated+.

5e only gro!p that probability of "stat is significant is for gro!p with ownership

concentration is N)3 . -he variables that meet o!r e6pectation for b9 #OC+, b

#OCL1 -A+, and b* #OCL EOF t'"= +(

Hy3ot-e"i" ) .

-here is evidence for firms with high ownership concentration #5=N)3 + that profit

firms with no ta6 loss carryforward tend to have more negative discretionary accr!als to

red!ce ta6able income #negative significant+. 7t meets the e6pectation that the &ind of

firms has lower financial report cost. On the other hand, there is no evidence that firms

with low and medi!m ownership concentration have negative discretionary accr!als. #p"

val!eN , 3+. 7t is consistent with the e6pectation.

Hy3ot-e"i" ,

'*


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Consistent with e6pectation, there is marginal evidence #p"val!e is , *9+ that high debt"

to"total asset ratio infl!ence the effect of ownership concentration in opposite way

#positive+. 7t means that if the firm has higher debt, the firm tends to have positive

discretionary accr!als.

Hy3ot-e"i" /

-able . shows clearly that firms with highly and moderate ownership concentration

have negative sign of coefficient for ownership concentration while there is positive sign

for firms with low ownership concentration. 7t is consistent with o!r e6pectation. 7t tells

!s that moderate and highly ownership concentration is believed to have low mar&et

press!re and that s!ch the firms are motivated to have lower income. 5owever, there is

no significant evidence for the lower ownership concentration firms to have positive

accr!als.


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/( Ro&!"tne"" te"t

'. Additional test and more statistically appropriate test to find the different

effect of low, moderate, and high ownership concentration is by !sing d!mmy

variables for the three level of the ownership concentration rather than !sing

separated sample. -he advantage of this model is that the error of the model is lower

than if we separate the sample into three gro!ps. -his paper then !se model #)+ to

cond!ct this test. rom the res!lt of the regression, one coefficient can be interpreted

is the difference of ownership concentration effect between low ownership

concentration compare to moderate and high ownership concentration. Other

variables show non"significant level of p"val!e.

By r!nning all ')= observation, !sing 1 ' for firms with ownership concentration

3 to )3 , and 1 9 for firms with ownerships concentration of N)3 , 7 find

consistent res!lt with %orc&, /hleifer, and 4ishny #'(22+.

-able .3. Ees!lt for rob!stness test '

1 3 ")3

1N )3

E 9 #adj E 9+

p"val!e # "stat+

p"val!e , ==LL

p"val!e ,=)*

' ,9 #*,3 +

, '' LL

LL significant for 3

-he res!lt above tells !s that the behavio!r of firms with ownership concentration

3 to )3 are significantly different from for the effect of ownership concentration

on the discretionary accr!als compare to lower ownership concentration #OC 3 +.

On the other hand, there is not evidence for difference of ownership with highly

concentration #N)3 + on discretionary accr!als compare to lower ownership

concentration.

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2. Another rob!stness test cond!cted for this test is !sing alternative

meas!rement of ownerships concentration. Eather than !sing 5erfindahl inde6, this

test !sing total ownership for the largest three ownership. -he res!lt is consistent

with the main test that !se 5erfindahl inde6.

LLsignificant for 3

LLLsignificant for P'

-he res!lt showed in table .* tells !s that the level of the ownership concentration

negatively significant infl!ence the discretionary accr!als for highly ownership

concentration. 7t means that the more concentrated a firm, there is more incentive to have

lower income thro!gh discretionary accr!als.

V( CONCL$SION

)( Con'l!"ion-he test shows !s that there is no clear relationship between the ownership concentration

and the discretionary accr!als for firms with lower and moderate level of ownership

concentration. All the coefficients of the variables are not significant. Oppositely, the

e6pectation is proven for the high level of ownership concentration firms. 5ypothesis ' is

proven that the profit firms #no ta6 loss carryforward+ have incentives to lower the

income to avoid ta6 e6pense. 7n addition, it tells !s that more concentrated firms have

lower mar&et press!re to have higher income.

-he second hypothesis is also proven for firms with high ownership concentration level

that large debt tend to red!ce the intention to have negative discretionary accr!als. 7t is

consistent with e6pectation that debt covenant plays role in increasing performance of

firm. Eelated to discretionary accr!als, the incentive to lower the income thro!gh

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discretionary accr!als is low.

-he compare of res!lt of separated gro!ps and rob!stness test shows that firms with

higher concentrated ownership have different attit!de towards the discretionary accr!als

compare to low ownership concentration. 7n addition, medi!m level ownership

concentration #3 ")3 + have significantly different from low ownership concentration

while there is no significant evidence for the difference of highly ownership

concentration #N)3 +. -his is consistent with %orc&, /hleifer, and 4ishny #'(22+.

,( Li#itation

'. -his st!dy has limitation in terms of variable !sed for marginal ta6 rate pro6y. 7f

there is data available, it is s!ggest to !se ta6 aggressiveness rather than d!mmy of

ta6 loss carryforward. -his test will come with good e6amination alternative.

9. -his test is !sing e"views .'. that has no tool to detect the o!tlier a!tomatically.

5ence, there is possibility to still incl!de o!tliers in the sample. 7t can !se soft ware

with tool to detect s!ch the problem or do the e6amination with more precise

meas!rement.

/( F!t!%e %e"ea%'-

F6amination to cond!ct in the f!t!re is to differentiate the ownership of government and

instit!tion. -hese two ownership will bring abo!t different attit!de towards the

discretionary accr!als. 7t may come o!t with different res!lt and may be more reliable.

Another development can do is to chec& the res!lt !sing several years !sing panel data or

separated data for every years.

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REFERENCES

Claessens, /. #'(()+, ?Corporate Governance and F>!ity rices: Fvidence from the C8ech

and /lova& Eep!blic@, -he $o!rnal of inance, 4ol. 39, '* ' M '*32.

Claessens, /., /. 1jan&ov, G. ohl #'(()+, ?Ownership and Corporate Governance: Fvidencefrom the C8ech Eep!blic@,


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/hac&elford, d. A. and -. /hevlin #9 '+, ?Fmpirical -a6 Eesearch in Acco!nting@, $o!rnalof Acco!nting and Fconomics, 4ol. =', =9'"=2).

/hleifer, A. and E.


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APPENDIX )( FIG$RE

ig!re '


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ig!re 9

Eesearch design

CACC SALES

Fitted value

TaxManagement

(DCA)

Owners i!C"n#entrati"n

$an% C"ntr"l

C"ntr"l varia&les'marginal tax ratesi esi eM$

*ast!er+"rman#e

$an% #"ntr"l

De!endentvaria&le ,nde!endent varia&les

iv


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APPENDIX ,: TA*LES

-able .'. descriptive statistics.

CACC'-an+e o;

"ale"OC 1/

la%+e"t4 LTD TA ,E t)>/

0*V

RO>E t) /

D?TA '.D$0TAX . '.

H/ # . (+ . 9 '.OC@D?TA .)= # . *+ .=3 '.

LNTA .= .93 # . + .9 '.OC@ROE ) / # .' + .9* . 9 # . '+ .9) '.

0*V .') .'' .'= .') .=( .== '.ROE ) / # .'=+ .=' . * # .''+ .=( .)* .=* '.

v


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-Abel .=. Coefficient #p"val!e+ for res!lt !sing all observation.

2. 3(3- 1.%':

'2)*

3A=9': B B

e 456 b *7T%b 82+ 2. b

82+ b % 12. b % 1b2. b 194T%: ba- 1.% i

OC !sing 5ervindahl inde6: H3 = i 1

-

S i2

OC D$0

TAX

D?TA OC@D?T

A

ROE OC@RO

E

LNTA 0*V Ad.

R ,

1CA "*,(F" *

# ,9'==+

, 2

1CA "',=F" 3

# ,'(=+

" ,'99

# ,'*3+

,'99

# , 32+

',33F" 3

# ,*9=+

" , '9

# ,*=+

*, F" )

# ,' +

, 9

# ,2)+

" , '

# ,92+

, 3

-able . . Ees!lt !sing partition of sample into three classifications #p"val!e in parentheses+.

4ariables OC 3 OC 3 ")3 OCN)310%-AI #b ' + #"+

OC #b9+ #"+

1-O-A #b =+ #S+

OCL1 -A #b +#S+

EOF t'"= #b3+ #S+

OCL EOF t'"= #b*+ T

-A #b ) + S

%B4 #b 2+

E 9

p"val!e # "stat+

" . = # .))+

. '9 # .=3 3+

" . = 3 # .('(+

. ( # .29*+

. =2 # .=*3+

"(.'F" * # .=* +

. # .'39+

" . =' # .' '+

,9

,3'

" .99( # .'9'+

" . '* # .3)3+

.=)( # .99 +

"(F" 3 # .3=3+

" . 9 # .)3 +

'.33F" * # . '=+

" . *3 #.) (+

. ' # .(3+

,'

,9

" . 9= # .)''+

"=.*F" 3 # . ' +LL

" .9'2 # .=*+

2.2*F" 3 # . *9+L

" . = # .' )+

2.3F" ) # . 9(3+LL

" . '9 # .=*2+

" . 3(* # .( +

,9'

, )LLsignificant for 'LLsignificant for 3

-able .*. res!lt for rob!stness test 9

4ariables OC 3 OC 3 ")3 OCN)310%-AI #b ' + " " . '2 # .2(+ " .9 * # .' 9+ " . * # .(+

vi


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OC #b9+ "

1 -A #b =+ S

OCL1 -A #b + S

EOF t'"= #b3+ S

OCL EOF t'"= #b*+ T

-A #b ) + S

%B4 #b 2+

E 9

p"val!e # "stat+

. =* # .=3+

" .9== # .* +

. ) # .3*+

. ' # .99=+

" , =3 # .9 +

. =* # .'2=+

" . =9 # . ()+

,9=

,3'*

" . * # .'9(+

"',9= # .9('+

, 93 # .'( +

" . 92 # .'3=+

, 3 # .' 3+

" . 2= # .*3+

" . 99 # .2((+

'2

, 2

" , ) # . '3+LL

.(9* # .3'*+

" , 2 # .* )+L

" . == # . +

, # . +LLL

" . ' # . (+

" . '* # .2=+

,9

, LLLsignificant for '

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