The effect of IFRS adoption and law enforcement on book tax aggressiveness: evidence from Asean countries


Firms are arguably motivated to exhibit tax aggressiveness because tax constitutes a significant portion of firms’ total costs. This study aims to test the effects of IFRS adoption and law enforcement on book-tax aggressiveness in six developing ASEAN countries. Our sample is 29,504 firm-year observations generated from Thomson Reuters Eikon for the years 2000–2017. The results show that IFRS adoption has a positive effect on book-tax aggressiveness,  indicating that firms tend to prioritize book-tax aggressiveness over book-tax conformity. Further, law enforcement negatively affects book-tax aggressiveness. All in all, our findings imply that law enforcement is very crucial for ASEAN countries to enhance managers’ awareness of not engaging the book-tax aggressiveness practice.

Keyword : tax reporting aggressiveness, financial reporting aggressiveness, IFRS, law enforcement

How to Cite
Damayanti, T. W. (2019). The effect of IFRS adoption and law enforcement on book tax aggressiveness: evidence from Asean countries. Business: Theory and Practice, 20, 284-292.
Published in Issue
Jul 11, 2019
Abstract Views
PDF Downloads
Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.


Abdul-Majid J (2017) Audit committee independence and a contracting perspective on good will impairment: Singaporean Evidence. Business: Theory and Practice 18: 128-135.

Atwood TJ, Drake M, Myers LA (2010) Book-tax conformity, earnings persistence and the association between earnings and future cash flows. Journal of Accounting and Economics 50: 111-125.

Atwood TJ, Drake MS, Myers JN, Myers LA (2012) Home country tax system characteristics and corporate tax avoidance: international evidence. The Accounting Review 87 (6): 1831-1860.

Badertscher BA, Phillips JD, Pincus M, Rego SO (2009) earnings management strategies and the trade-off between tax benefits and detection risk: to conform or not to conform? The Accounting Review 84 (1): 63-97.

Balakrishnan K, Blouin J, Guay WR (2012) Tax aggressiveness and corporate transparency

Ball R, Shivakumar L (2005) Earnings quality in UK private firms: comparative loss recognition timeliness. Journal of Accounting and Economics 39: 83-128.

Ball R (2006) International financial reporting standards (IFRS): Pros and cons for investors. Accounting and Business Research 36 (1): 5-27.

Barth ME, Landsman WR, Lang MH (2008) International accounting standards and accounting quality. Journal of Accounting Research 46 (3): 467-498.

Beneish M (1999) Incentives and penalties related to earnings overstatements that violate GAAP. The Accounting Review 74 (4): 425-457.

Blaylock BS, Shevlin TJ, Gaertner FB (2015) The Association between book-tax conformity and earnings. Management Review of Accounting Studies 20 (1): 141-172.

Blanchette M, Racicot F, Girard J (2011) The Effects of IFRS on financial ratios: early evidence in Canada. Certified General Accountants Association of Canada

Braga RN (2017) Effects of IFRS adoption on tax avoidance. Revista Contabilidade & Finanças 28 (75): 407-424.

Cairns D, Massoudi D, Taplin R, Tarca A (2011) FRS fair value measurement and accounting policy choice in the United Kingdom and Australia. The British Accounting Review 43: 1-21.

Callao S, Jarne J (2010) Have IFR S affected earnings management in the European Union? Accounting in Europe 7 (2): 159-189.

Chan KH, Lin KZ, Mo PLL (2010) Will a departure from tax-based accounting encourage tax noncompliance? Archival evidence from a transitory economy. Journal of Accounting and Economics 50: 58-73.

Chan KH, Lin KZ, Tang F (2013) Tax effects of book-tax conformity, financial reporting incentives, and firm size. Journal of International Accounting Research 12 (2): 1-25.

Chen E, Gavious I, Yosef R (2013) The relationship between the management of book income and taxable income under a moderate level of book-tax conformity. Journal of Accounting, Auditing & Finance 28 (4): 323-347.

Chen E, Gavious I (2017) The roles of book‐tax conformity and tax enforcement in regulating tax reporting behavior following International Financial Reporting Standards adoption. Accounting and Finance 57 (3): 681-699.

Christensen H, Hail L, Leuz C (2013) Mandatory IFRS reporting and changes in enforcement. Journal of Accounting and Economics 56 (2): 147-177.

Dhaliwal DS, Huber R, Lee HS, Pincus M (2008) Book-tax differences, uncertainty about fundamentals and information quality, and cost of capital

Dechow P, Sloan R, Sweeney A (1995) Detecting earnings management. The Accounting Review 70 (2): 193-226.

Desai M (2002) The divergence between book and tax income. Tax Policy and the Economy 17 (1): 169-206.

Desai M (2005) The degradation of reported corporate profits. The Journal of Economic Perspectives 19: 171-193.

Desai MA, Dyck A, Zingales L (2007) Theft and taxes. Journal of Financial Economics 84 (3): 591-623.

Dobrovič J, Gombár M, Ali Taha V (2018) Forms of managing the efficiency of tax administration in Slovak Republic. Journal of International Studies 11 (2): 304-314.

Erickson M, Hanlon M, Maydew E (2004) How much will firms pay for earnings that do not exist?: Evidence of taxes paid on allegedly fraudulent earnings. The Accounting Review 79 (2): 387-408.

Frank MM, Lynch LJ, Rego SO (2009) Tax reporting aggressiveness and its relation to aggressive financial reporting. The Accounting Review 84 (2): 467-496.

Fernandes A, Cerqueira A, Brandao E (2017) Tax and financial reporting aggressiveness: evidence from Europe. FEP Working Papers, School of Economics and Management, University of Porto.

Hanlon M (2005) The persistence and pricing of earnings, accruals, and cash flows when firms have large book-tax differences. The Accounting Review 80 (1): 137-166.

Hanlon M, Slemrod J (2009) What does tax aggressiveness signal? Evidence from stock market reaction to news about tax shelter involvement. Journal of Public Economics 93: 126-141.

Heltzer W, Mindak MP, Shelton SW (2012) The relation between aggressive financial reporting and aggressive tax reporting: Evidence from ex-Arthur Andersen clients. Research in Accounting Regulation 24 (2): 96-104.

Huang M, Chen H, Rickards RC (2018) The effects of IFRS adoption on tax avoidance in Europe. Journal of Management and Business Research 35 (1): 57-78.

Jeanjean T, Stolowy H (2008) Do accounting standards matter? An exploratory analysis of earnings management before and after IFRS adoption. Journal of Accounting and Public Policy 27: 480-494.

Jiang XY (2013) Tax enforcement, tax aggressiveness and stock price crash risk. Nankai Business Review 5: 152-160.

Jiraskova S (2015) The relationship between tax and book income after adoption IFRS in the Czech Republic in comparison with other European Countries. Journal of Economics, Business and Management 3 (12): 1180-1184.

Kamila PA, Martani D (2017) Analisis Hubungan Agresivitas Pelaporan Keuangan Dan Agresivitas Pajak. Jurnal Keuangan dan Perbankan 16 (2).

Kantsukov M, Sander P (2018) A less in valuation from Estonia: The difference between the fundamental value of equity under distributed and traditional profit taxation system. Business: Theory and Practice 19: 146-156.

Karampinis N, Hevas DL (2013) Effects of IFRS Adoption on Tax-induced Incentives for Financial Earnings Management: Evidence from Greece. The International Journal of Accounting 48 (2): 218-247.

Kim JB, Li, Zhang L (2011) Corporate tax avoidance and stock price crash risk: firm-level analysis. Journal of Financial Economics 100: 639-662.

King S, Sheffrin SM (2002) Tax evasion and equity theory: an investigative approach. International Tax and Public Finance 9: 505-521.

Ko JK, Choi EH, Kim WY (2012) The relation between aggressive financial reporting and aggressive tax reporting: Korean evidence. Korean Accounting Journal 21 (3): 95-130.

Koh Y, Lee H-A (2015) The effect of financial factors on firms’ financial and tax reporting decisions. Asian Review of Accounting 23 (2): 110-138.

Kraft A (2015) Management earnings forecasts and book-tax differences. International Journal of Economics and Finance 7 (3): 1-23.

Landsman WR, Maydew EL, Thornock JR (2012) The information content of annual earnings announcements and mandatory adoption of IFRS. Journal of Accounting and Economics 53 (1): 34-54.

Lee N (2010) Shock and law: Fin 48 Report Card, IFRS and beyond. International Journal of Economics and Finance 2 (3): 222-233.

Lennox C, Lisowsky P, Pittman J (2013) Tax aggressiveness and accounting fraud. Journal of Accounting Research 51 (4): 739-778.

Mills L, Newberry K, Trautman W (2002) Trends in book-tax income and balance sheet differences. Tax Notes 19: 1109-1124.

Nobes C (2006) The survival of international differences under IFRS: towards a research agenda. Accounting Bussiness Research 36: 233-245.

Nulla YM (2014) Does IFRS adoption influence quality of reporting?: An empirical evidence from large Canadian banks. International Journal of Accounting and Taxation 2 (2): 85-109.

Okafor ON (2015) Effects of IFRS on accounting quality and tax aggressiveness: evidence from Canadian mandatory adoption. University of Calgary.

Paulík J, Kombo F, Ključnikov A (2015) CSR as a driver of satisfaction and loyalty in commercial banks in the Czech Republic. Journal of International Studies 8 (3): 112-127.

Phillips J, Pincus M, Rego S (2003) Earnings management: New evidence based on deferred tax expense. The Accounting Review 78 (2): 491-521.

Rachmawati NA, Martani D (2017) Book-tax conformity level on the relationship between tax reporting aggressiveness and financial reporting aggressiveness. Australasian Accounting, Business and Finance Journal 11 (4): 86-101.

Rosen A, Rosen M (2009) Critics speak out as IFRS looms: Charest latest to criticize vague new rules. Financial Post

Roxas ML (2016) Additional evidence of firms’ willingness to pay taxes on apparent fictitious earnings. Journal of Applied Business and Economics 18 (6):112-117.

Shackelford DA, Shevlin T (2001) Empirical tax research in accounting. Journal of Accounting and Economics 31: 321-387.

Tsalavoutas I, Andre P, Evans L (2012) The transition to IFRS and the value relevance of financial statements in Greece. British Accounting Review 44 (4): 262-277.

Tang TYH (2015) Does book-tax conformity deter opportunistic book and tax reporting? An international analysis. European Accounting Review 24 (3): 441-469.

Vaivode I (2018) Born global companies. Is this a future economy of Latvia? A preliminary study. Business: Theory and Practice 19: 288-299.

Wang L (2015) Tax enforcement, corporate tax aggressiveness, and cash holdings. China Finance Review International 5 (4): 339-370.

Watrin C, Pott C, Ullman R (2012) The effect of book – tax conformity and tax accounting incentives on financial accounting: evidence from public and private limited companies in Germany. International Journal of Accounting Auditing and Performance Evaluation 8 (3): 274-302.

Whitaker C (2005) Bridging the book – tax accounting gap. Yale Law Journal 115 (3): 680-726.

Wilhelm PG (2002) International validation of the corruption perceptions index: Implications for business ethics and entrepreneurship education. Journal of Business Ethics 35 (3): 177-189.

Ye KT, Liu H (2011) Tax enforcement, income tax costs, and earnings management. Management World 5: 140-148.

Zeng YM, Zhang JS (2009) Does tax enforcement play a role as a corporate governance mechanism. Management World 3: 143-151.