The persistence of tax avoidance and its effect on the persistence of earnings
by Achmad Hizazi; Sylvia Veronica Siregar; Dwi Martani; Vera Diyanti
J. for Global Business Advancement (JGBA), Vol. 15, No. 4, 2022

Abstract: This paper suggests a new measure for gauging one aspect of tax avoidance, using a time series perspective. The paper investigates the effect of the new measure of tax avoidance on earning persistence, the latter functioning as a measure of earning quality, using the same time perspective. The paper argues that tax avoidance has a persistent attribute, and that this attribute has a negative slope. We also predict that tax avoidance is negatively related to earning persistence. We derive an empirical measure for the persistence of tax avoidance by using the present value revision (PVR) of coefficients from firm-specific auto-regressions of effective tax rates. We subsequently illustrate that tax avoidance is persistent, and that this persistence has a negative trend. Finally, we show that our measure of persistence of tax avoidance is negatively related to earning persistence.

Online publication date: Thu, 20-Apr-2023

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