Effects of Tax Sheltering on Earnings Management in Nigeria
This study examines how tax sheltering and its interactions with cash effective tax rate, long-term effective tax rate, tax savings, book tax gap, temporary difference of tax shelter and permanent difference of tax shelter impacted the modified Jones earnings model (earnings quality manage-ment) from 2009 to 2016. The study used a sample of all 116 listed companies on the Nigerian stock exchange ranging from all sectors excluding financial services sector due to its reporting sys-tem. Preliminary analyses were also conducted, such as descriptive statistics and the correlation matrix. In analysing the data, the study adopted panel multiple regression to identify the possible effects on earnings quality. We employed the panel generalised method of moments regression be-cause we suspected there is a variety of moment conditions that are deduced from the assumption of the theoretical model. The result shows that tax sheltering had a significant and positive effect on the quoted the modified Jones earnings model (earnings management). We concluded that the cash effective tax rate, long term effective tax rate, tax savings temporary and permanent tax difference are insignificant meaning that stakeholders in Nigeria are interested in companies that produce quality financial reports, which clearly shows that there is high earnings manipulation among Nige-ria quoted companies as most firms manipulate earnings through abnormal accruals. This is at-tributed to pressure Nigeria companies face in maintaining existing investors' confidence, smooth income over the years. While the significant effects of the book tax gap show that increase or de-crease in the book tax gap is a signal to high or low earnings quality. These reactions were different in developed economies, like the United States, as the cash effective tax rate, long-term effective tax rate, tax savings, book tax gap and temporary difference are significant where news about involve-ment in tax aggressiveness affects the quality of the firm's earnings. (original abstract)
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