The Effects of State Ownership and Tax Rate Cuts on Accounting Conservatism: An Emerging Market's Evidence

• In Event: Taxation

Abstract

This paper examines the effect of government ownership and tax cuts on accounting conservatism, considering the different levels of foreign ownership. We use a panel dataset of Vietnam firms for the period 2007 to 2019. The results show evidence of accounting conservatism in Vietnamese companies. Among the listed firms, state-owned enterprises (SOEs) adopt less conservative accounting than Non-SOEs; however, the evidence is only robust in firms with foreign ownership being lower than the foreign ownership median. The evidence implies the important impact of foreigners in helping improve corporate governance of local firms. We find that firms increase accounting conservatism during the year prior to the year that the tax rate cuts become effective. An SOE is a taxpayer; however, its controlling interest, the government, is also a tax collector. Interestingly, the increase in conservative accounting before the year of the tax rate cuts is more pronounced for Non-SOEs than for SOEs. This research is beneficial to policymakers and investors where the government is both the taxpayer and tax collector and in emerging markets where foreign investment is an important financing.

Keywords: accounting conservatism, state-owned-enterprises, foreign ownership, tax rate cuts, Vietnam

Authors

• Ben Le, University of Tennessee at Martin

• Paula Moore, University of Tennessee-Martin