Authors: Emmanuel Trahanas, Ioannis Sorros

Title: Financial misstatement measures and tax aggressiveness proxies: Do they really work for SMEs?

Abstract

Even though the literature on earnings management and tax aggressiveness of listed companies is vast, these subjects have not been thoroughly investigated regarding Small and Medium-sized private companies. In view of this literature gap, this paper addresses the question of whether Greek Small and Medium-sized companies engaged in financial misstatement practices for the period 2015-2018, right after the issuance of the new European Accounting Directive that was transposed into national legislation with the enactment of the Greek Accounting Standards Law.

By applying simple yet well-established measures, we investigate the efficiency of these measures in detecting the probability of financial misstatements. We also examine the efficiency of these measures from a tax aggressiveness point of view. We focus on SMEs not only because of their overall economic significance nationally and at the international level but also because prior literature on the relevant subjects of this study is scarce.

Keywords: Book-Tax Differences; Financial Misstatement measures; Small & Medium-sized Entities; Greece

JEL Classification: M41, H26