Do Firms Engage in Aggressive Tax Reporting Prior to Bankruptcy?
Accounting & Taxation, v. 7 (2) p. 1-15
15 Pages Posted: 28 Jan 2016
Date Written: 2015
Our study examines the tax reporting behaviors of firms just before they file for bankruptcy (“prebankruptcy firms”). Specifically, we investigate whether pre-bankruptcy firms engage in more aggressive tax reporting, in comparison to non-bankruptcy firms. We also investigate whether the relationship between aggressive financial reporting and aggressive tax reporting is different across pre-bankruptcy and non-bankruptcy firms. Our findings suggest that pre-bankruptcy firms engage in more aggressive tax reporting, vis-à-vis non-bankruptcy firms. Additionally, we find that the positive relation between aggressive book reporting and aggressive tax reporting is stronger among pre-bankruptcy firms, vis-à-vis firms that are not approaching bankruptcy. Thus, our findings not only further our understanding of the motivations behind these significant reporting decisions, but also help us understand how a growing proportion of corporate managers respond to increasing pressures to perform in a depressed economy.
Keywords: Tax Reporting, Bankruptcy, Aggressive Reporting
JEL Classification: M400, M410, M480
Suggested Citation: Suggested Citation