Impact of debt and taxes on earnings persistence of Portuguese SMEs
Autor(a) principal: | |
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Data de Publicação: | 2023 |
Outros Autores: | , |
Tipo de documento: | Artigo |
Idioma: | eng |
Título da fonte: | Revista Brasileira de Gestão de Negócios (Online) |
Texto Completo: | https://rbgn.fecap.br/RBGN/article/view/4222 |
Resumo: | Purpose – We analyze how debt burden and income taxes affect the earnings quality of Portuguese SMEs, using earnings persistence as a proxy for earnings quality. More specifically, we intend to find out whether the high indebtedness of these firms causes a greater tax effect than debt effect. Theoretical framework – While credit banks represent the main source of financing for SMEs, they tend to reduce their earnings in order to avoid taxes. However, this activity can be costly for their development, given that banking institutions demand earnings persistence to reduce the risk of default, in accordance with contract theory. Design/methodology/approach – We collect data for 140 Portuguese SMEs over the period from 2015 to 2021 to run panel data regressions. Findings – Debt and earnings persistence are negatively related, so this relationship tends to degrade earnings quality, which is inconsistent with capturing bank confidence. Furthermore, debt maintains the negative effect with income taxes in the model. However, in this combination, income taxes become significant to explain the negative influence on earnings persistence, which is consistent with tax avoidance. Finally, we control for firm size, which is positively associated with earnings persistence. Overall, taking together the determinants of debt, income tax and size, Portuguese SMEs do not have persistent earnings. Originality/value – In the most leveraged Portuguese SMEs, debt is not a governance mechanism to control managers’ decisions, as more debt reduces earnings persistence, meaning that managers are not sensitive to capturing creditors’ confidence. In addition, the tax effect is more relevant than the debt effect for earnings persistence. Faced with interest rate rigidity, managers exploit the discretionary nature of tax decisions. Keywords – SMEs; earnings persistence; debt; income taxes. |
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Impact of debt and taxes on earnings persistence of Portuguese SMEsImpacto da dívida e dos impostos na persistência dos lucros das PMEs portuguesasSMEsearnings persistencedebtincome taxesPMEpersistência de ganhosdívidaimposto de rendaPurpose – We analyze how debt burden and income taxes affect the earnings quality of Portuguese SMEs, using earnings persistence as a proxy for earnings quality. More specifically, we intend to find out whether the high indebtedness of these firms causes a greater tax effect than debt effect. Theoretical framework – While credit banks represent the main source of financing for SMEs, they tend to reduce their earnings in order to avoid taxes. However, this activity can be costly for their development, given that banking institutions demand earnings persistence to reduce the risk of default, in accordance with contract theory. Design/methodology/approach – We collect data for 140 Portuguese SMEs over the period from 2015 to 2021 to run panel data regressions. Findings – Debt and earnings persistence are negatively related, so this relationship tends to degrade earnings quality, which is inconsistent with capturing bank confidence. Furthermore, debt maintains the negative effect with income taxes in the model. However, in this combination, income taxes become significant to explain the negative influence on earnings persistence, which is consistent with tax avoidance. Finally, we control for firm size, which is positively associated with earnings persistence. Overall, taking together the determinants of debt, income tax and size, Portuguese SMEs do not have persistent earnings. Originality/value – In the most leveraged Portuguese SMEs, debt is not a governance mechanism to control managers’ decisions, as more debt reduces earnings persistence, meaning that managers are not sensitive to capturing creditors’ confidence. In addition, the tax effect is more relevant than the debt effect for earnings persistence. Faced with interest rate rigidity, managers exploit the discretionary nature of tax decisions. Keywords – SMEs; earnings persistence; debt; income taxes.Objetivo – Analisamos como o peso da dívida e os impostos sobre a renda afetam a qualidade dos lucros das PMEs portuguesas, usando a persistência dos lucros como proxy da qualidade dos lucros. Mais especificamente, pretendemos descobrir se o alto endividamento dessas empresas causa um efeito fiscal maior do que o efeito da dívida. Referencial teórico – Embora os bancos de crédito representem a principal fonte de financiamento das PMEs, elas tendem a reduzir seus lucros para evitar impostos. Entretanto, essa atividade pode ser onerosa para seu desenvolvimento, uma vez que as instituições bancárias exigem a persistência de lucros para reduzir o risco de inadimplência, de acordo com a teoria dos contratos. Metodologia – Coletamos dados de 140 PMEs portuguesas durante o período de 2015 a 2021 para executar regressões de dados em painel. Resultados – A dívida e a persistência de lucros estão negativamente relacionadas, de modo que essa relação tende a degradar a qualidade de lucros, o que é inconsistente com a captura da confiança dos bancos. Além disso, a dívida mantém o efeito negativo com o imposto de renda no modelo. Entretanto, nessa combinação, o imposto de renda torna-se significativo para explicar a influência negativa sobre a persistência de lucros, o que é consistente com a evasão fiscal. Por fim, controlamos o tamanho da empresa, que está positivamente associado à persistência de lucros. Em geral, considerando os determinantes de dívida, imposto de renda e tamanho, as PMEs portuguesas não têm lucros persistentes. Contribuições – Nas PMEs portuguesas mais alavancadas, a dívida não é um mecanismo de governança para controlar as decisões dos gerentes, pois mais dívida reduz a persistência de lucros, o que significa que os gerentes não são sensíveis à captura da confiança dos credores. Além disso, o efeito fiscal é mais relevante do que o efeito da dívida para a persistência de lucros. Diante da rigidez da taxa de juros, os gerentes exploram a natureza discricionária das decisões fiscais. Palavras-chave – PMEs; persistência de lucros; dívida; imposto de renda.FECAP2023-07-06info:eu-repo/semantics/articleinfo:eu-repo/semantics/publishedVersionAvaliado por paresapplication/pdfhttps://rbgn.fecap.br/RBGN/article/view/422210.7819/rbgn.v25i2.4222Review of Business Management; Vol. 25 No. 2 (2023)RBGN Revista Brasileira de Gestão de Negócios; Vol. 25 Núm. 2 (2023)RBGN - Revista Brasileira de Gestão de Negócios; v. 25 n. 2 (2023)1983-08071806-4892reponame:Revista Brasileira de Gestão de Negócios (Online)instname:Fundação Escola de Comércio Álvares Penteado (FECAP)instacron:FECAPenghttps://rbgn.fecap.br/RBGN/article/view/4222/1913Copyright (c) 2023 Review of Business Managementinfo:eu-repo/semantics/openAccess Pereira, CláudiaGomes, LuísLima, Armindo2023-12-12T19:39:26Zoai:ojs.emnuvens.com.br:article/4222Revistahttp://rbgn.fecap.br/RBGN/indexhttps://rbgn.fecap.br/RBGN/oai||jmauricio@fecap.br1983-08071806-4892opendoar:2023-12-12T19:39:26Revista Brasileira de Gestão de Negócios (Online) - Fundação Escola de Comércio Álvares Penteado (FECAP)false |
dc.title.none.fl_str_mv |
Impact of debt and taxes on earnings persistence of Portuguese SMEs Impacto da dívida e dos impostos na persistência dos lucros das PMEs portuguesas |
title |
Impact of debt and taxes on earnings persistence of Portuguese SMEs |
spellingShingle |
Impact of debt and taxes on earnings persistence of Portuguese SMEs Pereira, Cláudia SMEs earnings persistence debt income taxes PME persistência de ganhos dívida imposto de renda |
title_short |
Impact of debt and taxes on earnings persistence of Portuguese SMEs |
title_full |
Impact of debt and taxes on earnings persistence of Portuguese SMEs |
title_fullStr |
Impact of debt and taxes on earnings persistence of Portuguese SMEs |
title_full_unstemmed |
Impact of debt and taxes on earnings persistence of Portuguese SMEs |
title_sort |
Impact of debt and taxes on earnings persistence of Portuguese SMEs |
author |
Pereira, Cláudia |
author_facet |
Pereira, Cláudia Gomes, Luís Lima, Armindo |
author_role |
author |
author2 |
Gomes, Luís Lima, Armindo |
author2_role |
author author |
dc.contributor.author.fl_str_mv |
Pereira, Cláudia Gomes, Luís Lima, Armindo |
dc.subject.por.fl_str_mv |
SMEs earnings persistence debt income taxes PME persistência de ganhos dívida imposto de renda |
topic |
SMEs earnings persistence debt income taxes PME persistência de ganhos dívida imposto de renda |
description |
Purpose – We analyze how debt burden and income taxes affect the earnings quality of Portuguese SMEs, using earnings persistence as a proxy for earnings quality. More specifically, we intend to find out whether the high indebtedness of these firms causes a greater tax effect than debt effect. Theoretical framework – While credit banks represent the main source of financing for SMEs, they tend to reduce their earnings in order to avoid taxes. However, this activity can be costly for their development, given that banking institutions demand earnings persistence to reduce the risk of default, in accordance with contract theory. Design/methodology/approach – We collect data for 140 Portuguese SMEs over the period from 2015 to 2021 to run panel data regressions. Findings – Debt and earnings persistence are negatively related, so this relationship tends to degrade earnings quality, which is inconsistent with capturing bank confidence. Furthermore, debt maintains the negative effect with income taxes in the model. However, in this combination, income taxes become significant to explain the negative influence on earnings persistence, which is consistent with tax avoidance. Finally, we control for firm size, which is positively associated with earnings persistence. Overall, taking together the determinants of debt, income tax and size, Portuguese SMEs do not have persistent earnings. Originality/value – In the most leveraged Portuguese SMEs, debt is not a governance mechanism to control managers’ decisions, as more debt reduces earnings persistence, meaning that managers are not sensitive to capturing creditors’ confidence. In addition, the tax effect is more relevant than the debt effect for earnings persistence. Faced with interest rate rigidity, managers exploit the discretionary nature of tax decisions. Keywords – SMEs; earnings persistence; debt; income taxes. |
publishDate |
2023 |
dc.date.none.fl_str_mv |
2023-07-06 |
dc.type.driver.fl_str_mv |
info:eu-repo/semantics/article info:eu-repo/semantics/publishedVersion Avaliado por pares |
format |
article |
status_str |
publishedVersion |
dc.identifier.uri.fl_str_mv |
https://rbgn.fecap.br/RBGN/article/view/4222 10.7819/rbgn.v25i2.4222 |
url |
https://rbgn.fecap.br/RBGN/article/view/4222 |
identifier_str_mv |
10.7819/rbgn.v25i2.4222 |
dc.language.iso.fl_str_mv |
eng |
language |
eng |
dc.relation.none.fl_str_mv |
https://rbgn.fecap.br/RBGN/article/view/4222/1913 |
dc.rights.driver.fl_str_mv |
Copyright (c) 2023 Review of Business Management info:eu-repo/semantics/openAccess |
rights_invalid_str_mv |
Copyright (c) 2023 Review of Business Management |
eu_rights_str_mv |
openAccess |
dc.format.none.fl_str_mv |
application/pdf |
dc.publisher.none.fl_str_mv |
FECAP |
publisher.none.fl_str_mv |
FECAP |
dc.source.none.fl_str_mv |
Review of Business Management; Vol. 25 No. 2 (2023) RBGN Revista Brasileira de Gestão de Negócios; Vol. 25 Núm. 2 (2023) RBGN - Revista Brasileira de Gestão de Negócios; v. 25 n. 2 (2023) 1983-0807 1806-4892 reponame:Revista Brasileira de Gestão de Negócios (Online) instname:Fundação Escola de Comércio Álvares Penteado (FECAP) instacron:FECAP |
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Fundação Escola de Comércio Álvares Penteado (FECAP) |
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FECAP |
institution |
FECAP |
reponame_str |
Revista Brasileira de Gestão de Negócios (Online) |
collection |
Revista Brasileira de Gestão de Negócios (Online) |
repository.name.fl_str_mv |
Revista Brasileira de Gestão de Negócios (Online) - Fundação Escola de Comércio Álvares Penteado (FECAP) |
repository.mail.fl_str_mv |
||jmauricio@fecap.br |
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