Effects of Tax Aggressiveness and Tax Avoidance on Earnings Persistence in Brazilian Companies
DOI:
https://doi.org/10.16930/2237-766220263658Keywords:
Tax aggressiveness, Tax avoidance, Tax risk, Earnings persistenceAbstract
With the aim of analyzing the effects of tax aggressiveness and tax avoidance on earnings persistence, this study examined 286 nonfinancial listed Brazilian companies over the period from 2017 to 2021. totaling 1.217 firm year observations. Data were collected from the Refinitiv Eikon® database and from the notes to the financial statements, and were analyzed using linear regressions estimated by the Ordinary Least Squares (OLS) method. Tax avoidance was measured using Abnormal Book Tax Differences (ABTD). Two proxies were employed for tax aggressiveness: (i) the interaction between ABTD and tax risk, measured by the standard deviation of the current effective tax rate over the previous five years; and (ii) the annual change in the sum of tax provisions and contingent tax liabilities, scaled by total assets. The results indicate that tax aggressiveness reduces earnings persistence, an effect not observed for tax avoidance. This study contributes to the literature by examining tax aggressiveness, a construct that has been scarcely used in prior research, and by supporting the view that it is distinct from tax avoidance. The study also offers practical implications by demonstrating that tax strategies that reduce tax expense without increasing tax risk are preferable for managers and investors, as they allow for improvements in firm valuation models through the identification of companies that, due to lower levels of tax aggressiveness, tend to exhibit more persistent earnings.
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