An investigation of the value relevance of deferred tax: the mediating effect of earnings management

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There is an academic discussion about the value relevance of deferred tax, which aims to find out the effect of deferred tax on the investors’ decisions. In light of this discussion, the first question is about the impact of deferred tax on management practices to manipulate earnings, which is called earnings management, the second question is about the value relevance of earnings management, the third question is about the value relevance of deferred tax, and the fourth question is about the mediating effect of earnings management. The paper focuses on listed firms in the Egyptian Stock Exchange (EGX), especially firms that were recorded in EGX 100, for six-year period (2013–2018) for 107 firms and 642 completed observations. The findings are as follows: management uses deferred tax to manipulate earnings, since an increase in deferred tax amounts increases earnings management practices; there is no value relevance of earnings management, which means earnings management practices do not affect the investors’ decisions; there is value relevance of deferred tax, which confirms that deferred tax is one of the determinants that affect the investors’ decisions; there is no value relevance of deferred tax through earnings management as a mediator variable since investors are not interested in earnings management practices to make their investment decisions. This paper investigates the relationship between deferred tax, earnings management, and value relevance in the Egyptian context.

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    • Figure 1. Research model
    • Figure 2. Structural model (outer model)
    • Figure 3. Structural model (inner model)
    • Table 1. Variable measurement
    • Table 2. Descriptive statistics of the variables
    • Table 3. Testing of model goodness-of-fit
    • Table 4. Outer weights
    • Table 5. Values of discriminant validity (cross-loading)
    • Table 6. R-square value
    • Table 7. Path coefficient
    • Conceptualization
      Walid Shehata Mohamed Kasim Soliman, Karim Mansour Ali
    • Data curation
      Walid Shehata Mohamed Kasim Soliman
    • Formal Analysis
      Walid Shehata Mohamed Kasim Soliman, Karim Mansour Ali
    • Funding acquisition
      Walid Shehata Mohamed Kasim Soliman
    • Investigation
      Walid Shehata Mohamed Kasim Soliman, Karim Mansour Ali
    • Methodology
      Walid Shehata Mohamed Kasim Soliman
    • Project administration
      Walid Shehata Mohamed Kasim Soliman
    • Supervision
      Walid Shehata Mohamed Kasim Soliman, Karim Mansour Ali
    • Visualization
      Walid Shehata Mohamed Kasim Soliman
    • Writing – original draft
      Walid Shehata Mohamed Kasim Soliman, Karim Mansour Ali
    • Writing – review & editing
      Walid Shehata Mohamed Kasim Soliman, Karim Mansour Ali