Accounting conservatism and frm value in Egypt: the mediating role of tax avoidance

Abstract

Purpose This paper examines the mediating efect of the frm’s tax-avoidance strategies on the relationship between a frm’s conservative practices and its frm value. Design/methodology/approach This study employs the Diference Generalized Method of Moments (GMM) to address endogeneity issues when testing empirical models. C-Score measures accounting conservatism, while cash efective tax rate (Cash-ETR) assesses tax avoidance practices. Additionally, Tobin’s Q (TQ), return on equity (ROE), and return on assets (ROA) serve as proxies for the frm’s value. To strengthen the results of the three mediating GMM regression models, alternative deferred tax and current efective tax rate measures are utilized for tax avoidance. The study sample comprises 64 non-fnancial frms listed on the Egyptian Stock Exchange (EGX 100) from 2014 to 2023. Findings The results show a positive direct efect of conservative frm practices on the frm value, partially mediated by the indirect efect of tax avoidance techniques. Research limitations/implications Policymakers should strengthen the enforcement of International Financial Reporting Standards to reduce earnings manipulation while allowing lawful taxation without imposing excessive burdens on businesses, thus decreasing their tendency toward tax evasion. Originality/value This study is the frst to explore empirically the mediating function of tax avoidance practices in the association between conditional accounting conservatism (proxied by C-Score) and frm value (proxied by TQ, ROA, ROE). Further, this study distinctly enhances knowledge by providing new insights to managers and policymakers into the interplay between conservative accounting practices and tax avoidance strategies within the tax regulations in the Egyptian context.