Are Family Firms Selective in Tax and Accounting Aggressiveness? Evidence from India

This study investigates whether family firms are aggressive on tax and accounting from the perspective of legitimacy, reputation, risk, and organizational identity. Using the presence of tax disputes to measure tax aggressiveness and the presence of net deferred tax liability in financial statements to measure limited accounting aggressiveness, this study also explores the impact of active family participation in management and the generation of family participation in management. Based on an analysis of a balanced panel of 1,782 data points, covering 297 listed companies in India, we confirm that family firms favor indirect tax aggressiveness but differentiate between indirect and direct tax aggressiveness, and choose accounting policies that improve book profits and result in temporary book-tax differences. The results are controlled for industry and year effects, direct and indirect tax aggressiveness, total promoter shareholdings and level of pledged promoter shareholdings and tested using additional tools that deal with heteroskedasticity and endogeneity. This study highlights the need for simplifying fiscal legislation to improve compliance and provides practical insights to investors on family firms’ tax and accounting aggressiveness.