Journal of Economics and Management Volume 18, No. 2 September, 2022

The Role of Insiders on Book-Tax Conformity and Leverage in the New Tax Rate

Marie Jane Jumawan-Matero

School of Management, University of the Philippines Cebu, Cebu City, Philippines

Yi-Hsing Liao

Department of Accounting, Chung Yuan Christian University, Taoyuan, Taiwan

Abstract

This study investigates the link between book-tax conformity and leverage under the moderation of insiders. This study finds that the leverage has a significantly positive connection with book-tax conformity in the three-year pooled sample, in the year before and the year immediately after the new tax rate, thereby, lending support to the hypothesis. The hypotheses on the presence and the cumulative insider ownership over the conformity-leverage relationship are supported in the three-year pooled sample and the year before the new tax rate. These findings indicate that the new tax rate might cause a change in the observed relationship rendering leverage (presence, and the cumulative insider ownership) insignificant in the year of (the year immediately after) the new tax rate. The results of this study are robust to alternative monitoring mechanisms.

Keywords：Leverage, Insiders, Book-tax conformity

JEL Classifications：G32, G34, H20, M41.

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