Business Groups, Taxes and Accruals Management

C.A.C. Beuselinck, M. Deloof

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This paper provides evidence that Belgian firms belonging to a business group have a lower effective tax rate (ETR) and face a less positive association between pre-tax income and ETRs than independent firms.These findings suggest that individual group members apply efficient tax planning techniques in order to minimize taxes at the group level.We hypothesize that group firms strategically adjust firm-level reported earnings levels in response to tax incentives.We find evidence consistent with this hypothesis, in that the intrinsic negative association between total accruals and operating cash flows is more (less) pronounced for group firms facing a positive (zero) marginal tax rate status, compared to independent firms.In addition, we find that a group firm s net tax-paying situation is more important in its discretionary accruals reporting decisions, compared to independent firms.Finally, we identify intra-group receivables as relevant tax-reducing accruals components.Results are robust to alternative model specifications, variable definitions and measures.
Original languageEnglish
Place of PublicationTilburg
Number of pages44
Publication statusPublished - 2006

Publication series

NameCentER Discussion Paper


  • business groups
  • Effective tax rate
  • Marginal tax rate
  • Accruals - Cash Flow Association


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