The mediating role of earnings management on the relationship of corporate tax avoidance on profitability and firm value of Philippine publicly-listed firms

Date of Publication


Document Type

Master's Thesis

Degree Name

Master of Science in Accountancy


Ramon V. Del Rosario College of Business



Thesis Adviser

Rodiel C. Ferrer

Defense Panel Member

Brian C. Gozun


The ultimate goal of creating businesses, particularly the corporations, is to promote the welfare of the shareholders. However, government gets portion of the income in the form of tax payments. Hence, corporate taxes are viewed involuntary and influential in making corporate decisions. Traditionally, tax savings are viewed as transfer of value from the government to shareholders (Yorke, Amidu & Agyemin-Boateng, 2016) which supports the Stewardship theory. However, current studies viewed corporate tax avoidance (CTA) in the context of the Agency Theory which suggests that opportunistic managers capture some value from tax savings for their own interests.

Consequently, this study aimed to determine whether the stewardship theory or agency theory supports the tax avoidance strategies of publicly-listed firms in the Philippines. This was tested by determining the direct effects of CTA on 1) profitability and 2) firm value.

In addition, current studies also linked CTA and earnings management (EM). Some researchers argue that the complexity of CTA strategies give opportunities and provide shield to managers to engage in EM to pursue their personal interests. To test this, the study examined the 1) direct effect of CTA on EM, 2) direct effect of EM on firm value and the mediating role of EM on the relationship of 2) CTA on profitability and 3) CTA on firm value.

To test the relationships stated, indicators were used to measure the constructs. CTA was proxied by three variables namely, differential tax rate, book-tax difference and long-run cash effective tax rate. EM was measured using the Modified Jones Model which captures accrual-based earnings management. Whereas, the main dependent variables, profitability and firm value were measured using return on assets and Tobin's Q, respectively.

The analyses were conducted using descriptive statistics, correlation analysis, regression and Partial Least Square-Structural Equation Modeling. The samples tested consists of 61 publicly-listed firms. The period covered is from 2012-2016 with 305 firm year observations.

The results of the study provided statistically significant evidence that show that publicly-listed firms are using CTA strategies to improve profitability which affirms the applicability of the Stewardship Theory. However, the study failed to provide evidence that CTA increases EM. But, even if CTA does not seem to provide venues for EM, EM still exists among the firms. As noted in the study, EM practices seem detrimental to firm value which supports the Agency Theory.

Abstract Format






Accession Number


Shelf Location

Archives, The Learning Commons, 12F Henry Sy Sr. Hall

Physical Description

x, 90 pages ; 30 cm. ; 1 computer optical disc ; 4 3/4 in.


Earnings management; Corporations--Taxation; Profit--Accounting

This document is currently not available here.