Journal of Economics and Management Volume 19, No. 2 September, 2023

Impact of Foreign Shareholders on Book-Tax Conformity and Related Party Transactions after International Financial Reporting Standards Adoption

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

We test for the effect of related party transactions on book-tax conformity examining the moderating role of foreign shareholders.  This study uses a unique set of levels of book-tax conformity from 2012 to 2014 in Taiwanese firms. All regression results are estimated by ordinary least squares. This study finds that lower related party transactions are associated with higher book-tax conformity in the year of IFRS adoption supporting the hypothesis. The hypothesis of the moderating role of foreign shareholders through higher effects of its cumulative percentage of ownership is not supported because the negative relationship between related party transactions and book-tax conformity is moderated with significantly lower effects of cumulative percentage of ownership by all foreign shareholders.  The latter registers a positive association with related party transactions and generates a net negative effect on book-tax conformity which should alert the stakeholders. The IFRS adoption might cause a significant decline in the number of firms with foreign shareholders, observed relationship between book-tax conformity and related party transactions, and the moderating role of foreign shareholders, rendering the related party transactions, cumulative percentage of ownership by all foreign shareholders, and its interaction with related party transactions significant in the year of the adoption.  The result of our study is robust to the alternative constructions.

Keywords：Foreign Shareholders, Book-Tax Conformity, Related Party Transactions

JEL Classifications：G32, H20, M41

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