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Effect of earnings management and deferred tax on tax avoidance: Evidence using modified Jones model algorithm
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John MacCarthy 
This work is licensed under a Creative Commons Attribution 4.0 International License.
Abstract
The paper sought to examine earnings management and deferred tax after the passage and post-adoption of the Income Tax Act, 2015 (Act 896) on tax avoidance. This paper examines the effect of earnings management and deferred tax on tax avoidance. A probability sampling technique selected twenty-four firms from 2001 to 2020 on the Ghana Stock Exchange. A quantitative research technique is used to test five hypotheses. Panel data regression is employed to predict the effect of earnings management on tax avoidance. The study revealed that earnings management and other macroeconomic variables accounted for or explained 77.9% of tax avoidance practices of the selected firms. Furthermore, the study revealed a significant and positive relationship between earnings management, deferred tax, and leverage on tax avoidance. The study finds a decrease in the values of earnings management after 2015, signifying a reduction in tax avoidance practice after the passage of Act 896. The study concludes the need to strengthen the public interest theory of regulation to bring earnings management to its lowest point. The study recommends a revision to IAS 12 as a public interest regulation to reduce the discretions to managers on deferred tax.
Keywords: Earnings Management, Deferred Tax, Tax Avoidance, Leverage
Authors’ individual contribution: The Author is responsible for all the contributions to the paper according to CRediT (Contributor Roles Taxonomy) standards.
Declaration of conflicting interests: The Author declares that there is no conflict of interest.
JEL Classification: G30, G32, M41, M42, O16
Received: 23.09.2021
Accepted: 20.12.2021
Published online: 22.12.2021
How to cite this paper: MacCarthy, J. (2021). Effect of earnings management and deferred tax on tax avoidance: Evidence using modified Jones model algorithm [Special issue]. Corporate Ownership & Control, 19(1), 272–287. https://doi.org/10.22495/cocv19i1siart5
