Determinants of Book-Tax Differences in Islamic Banking: The Moderating Role of Firm Size in the Relationship between Profitability, Deferred Tax Expense, and Tax Efficiency
DOI:
https://doi.org/10.37385/ceej.v7i1.11499Keywords:
Book-Tax Difference, ROA, Deferred Tax Expense, Effective Tax Rate, Firm Size, Tax Planning, Islamic Banking, IndonesiaAbstract
This study investigates the determinants of Book-Tax Differences (BTD) in Islamic banking, focusing on profitability (Return on Assets/ROA), deferred tax expense (DTE), and tax efficiency (Effective Tax Rate/ETR), with firm size as a moderating variable. The research is conducted on PT Bank Syariah Indonesia Tbk over the period 2021–2025 using quarterly financial statement data. A quantitative explanatory approach is employed using multiple regression analysis and Moderated Regression Analysis (MRA). The empirical results indicate that ROA, DTE, and ETR significantly influence Book-Tax Differences. Profitability increases managerial incentives for tax planning, resulting in higher BTD. Deferred tax expense reflects temporary differences between accounting and tax recognition, directly contributing to BTD. Meanwhile, tax efficiency (ETR) shows a negative relationship with BTD, indicating that lower effective tax rates are associated with more aggressive tax planning behavior. Furthermore, firm size significantly strengthens the relationship between the independent variables and BTD. Larger firms tend to have more complex operational structures, greater access to tax planning strategies, and higher flexibility in financial reporting, which increases the magnitude of Book-Tax Differences. This study contributes to the literature on tax accounting, earnings quality, and Islamic banking by providing empirical evidence on the interaction between financial performance, tax behavior, and organizational scale.
References
Ali, A., & Zhang, W. (2015). CEO tenure and tax avoidance. Journal of Accounting and Economics, 59(1), 60–79. https://doi.org/10.1016/j.jacceco.2014.11.001
Armstrong, C. S., Blouin, J. L., & Larcker, D. F. (2012). The incentives for tax planning. Journal of Accounting and Economics, 53(1–2), 1–18. https://doi.org/10.1016/j.jacceco.2011.04.001
Badertscher, B., Katz, S., & Rego, S. O. (2013). The separation of ownership and control and corporate tax avoidance. Journal of Accounting and Economics, 56(2–3), 228–250. https://doi.org/10.1016/j.jacceco.2013.08.005
Blaylock, B., Shevlin, T., & Wilson, R. (2012). Tax avoidance, large positive temporary book-tax differences. Journal of Accounting Research, 50(1), 41–68. https://doi.org/10.1111/j.1475-679X.2011.00422.x
Desai, M. A., & Dharmapala, D. (2006). Corporate tax avoidance and high-powered incentives. Journal of Financial Economics, 79(1), 145–179. https://doi.org/10.1016/j.jfineco.2005.02.002
Dyreng, S. D., Hanlon, M., & Maydew, E. L. (2008). Long-run corporate tax avoidance. The Accounting Review, 83(1), 61–82. https://doi.org/10.2308/accr.2008.83.1.61
Dyreng, S. D., Hanlon, M., Maydew, E. L., & Thornock, J. R. (2017). Changes in corporate tax avoidance. The Accounting Review, 92(5), 165–185. https://doi.org/10.2308/accr-51585
Fama, E. F., & French, K. R. (1998). Taxes, financing decisions, and firm value. Journal of Finance, 53(3), 819–843. https://doi.org/10.1111/0022-1082.00036
Frank, M. M., Lynch, L. J., & Rego, S. O. (2009). Tax reporting aggressiveness and its relation to aggressive financial reporting. The Accounting Review, 84(2), 467–496. https://doi.org/10.2308/accr.2009.84.2.467
Gaertner, F. B. (2014). CEO after-tax compensation incentives. The Accounting Review, 89(4), 1399–1424. https://doi.org/10.2308/accr-50758
Graham, J. R., Hanlon, M., Shevlin, T., & Shroff, N. (2012). Incentives for tax planning and avoidance. Journal of Accounting and Economics, 53(1–2), 1–18. https://doi.org/10.1016/j.jacceco.2011.04.001
Gujarati, D. N., & Porter, D. C. (2009). Basic econometrics. McGraw-Hill.
Hanlon, M. (2005). The persistence and pricing of earnings, accruals, and cash flows when firms have large book-tax differences. The Accounting Review, 80(1), 137–166. https://doi.org/10.2308/accr.2005.80.1.137
Hanlon, M., & Heitzman, S. (2010). A review of tax research. Journal of Accounting and Economics, 50(2–3), 127–178. https://doi.org/10.1016/j.jacceco.2010.09.002
Hayes, A. F. (2018). Introduction to mediation, moderation, and conditional process analysis. Guilford Press.
Hope, O. K., Ma, M. S., & Thomas, W. B. (2013). Tax avoidance and geographic earnings disclosure. Journal of Accounting and Economics, 56(2–3), 170–189. https://doi.org/10.1016/j.jacceco.2013.06.002
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X
Lennox, C. S., Lisowsky, P., & Pittman, J. (2013). Tax aggressiveness and audit risk. The Accounting Review, 88(5), 1643–1673. https://doi.org/10.2308/accr-50505
Mills, L. F. (1998). Book-tax differences and IRS adjustments. The Accounting Review, 73(2), 169–186.
Phillips, J., Pincus, M., & Rego, S. O. (2003). Earnings management: New evidence based on deferred tax expense. The Accounting Review, 78(2), 491–521. https://doi.org/10.2308/accr.2003.78.2.491
Rego, S. O. (2003). Tax avoidance activities of U.S. multinational corporations. The Accounting Review, 78(4), 795–812. https://doi.org/10.2308/accr.2003.78.4.795
Richardson, G., Taylor, G., & Lanis, R. (2013). Determinants of tax aggressiveness. Journal of Accounting and Public Policy, 32(4), 353–372. https://doi.org/10.1016/j.jaccpubpol.2013.06.003
Shackelford, D. A., & Shevlin, T. (2001). Empirical tax research in accounting. Journal of Accounting and Economics, 31(1–3), 321–387. https://doi.org/10.1016/S0165-4101(01)00022-2
Tang, T. Y. H., & Firth, M. (2011). Can book-tax differences capture earnings management? Journal of Accounting and Public Policy, 30(6), 581–611. https://doi.org/10.1016/j.jaccpubpol.2011.08.003
Watts, R. L., & Zimmerman, J. L. (1978). Towards a positive theory of the determination of accounting standards. The Accounting Review, 53(1), 112–134.
Zimmerman, J. L. (1983). Taxes and firm size. Journal of Accounting and Economics, 5, 119–149. https://doi.org/10.1016/0165-4101(83)90008-3
Template
