The effect of tax risk on audit report delay: Empirical evidence from Indonesia

Figures & data

Table 1. Sample selection procedure

Selection procedure	Firm-year
Initial observation, companies with complete financial reports and annual reports, period 2012 to 2017	2,094
Less: observations with missing data for audit report lag	(39)
Less: observations with missing data for tax risk	(242)
Number of final observations (period 2012 to 2017), firm-year	1,813

Table 2. Descriptive statistics

Variable	Obs.	Mean	Std. dev.	Min	Max
ARL	1,813	1.8844	0.0867	1.6990	2.0569
BTDV	1,813	0.0511	0.0675	0.0038	0.2633
CAEQ	1,813	0.0886	0.0871	0.0038	0.3077
DER	1,813	1.2787	1.2480	0.0085	5.0229
EPS	1,813	55.5980	117.3895	−67.7090	450.1130
AGE	1,813	2.7690	0.4858	1.7918	3.3322
SIZE	1,813	19.8522	3.5972	12.0142	24.0322
SALES	1,813	0.8265	0.6351	0.0679	2.3827
ROA	1,813	0.0462	0.0849	−0.1220	0.2278
LOSS	1,813	0.2642	0.4410	0	1
BIGF	1,813	0.4054	0.4911	0	1

Table 3. Correlation matrix, variance inflation factor, and tolerance

Panel A. Correlation matrix
	BTDV	CAEQ	DER	EPS		AGE	SIZE		SALES	ROA	LOSS	BIGF
BTDV	1.000
CAEQ	−0.168	1.000
DER	−0.003	−0.201	1.000
EPS	−0.190	0.281	−0.133	1.000
AGE	0.027	−0.034	−0.073	0.170		1.000
SIZE	−0.177	0.087	−0.050	0.338		0.088	1.000
SALES	−0.153	0.089	0.151	0.115		0.151	−0.058		1.000
ROA	−0.321	0.403	−0.210	0.553		0.065	0.216		0.307	1.000
LOSS	0.352	−0.245	0.115	−0.395		−0.046	−0.226		−0.206	−0.699	1.000
BIGF	−0.153	0.121	0.014	0.184		0.112	0.012		0.187	0.252	−0.099	1.000
Panel B. Variance inflation factor (VIF) and Tolerance
	Mean	CAEQ	DER		EPS	AGE	SIZE	SALES		ROA	LOSS	BIGF
VIF	1.50	1.24	1.15		1.61	1.08	1.17	1.24		2.92	2.01	1.11
Tolerance	0.67	0.81	0.87		0.62	0.92	0.86	0.81		0.34	0.50	0.90

Table 4. Primary regression results^a

	ARL^b
Variable	Coef.	t-stat.	p-value
BTDV	0.053	1.07	0.285
CAEQ	−0.046	−1.26	0.208
DER	0.000	0.10	0.922
EPS	0.000	−0.09	0.928
AGE	0.008	0.48	0.630
SIZE	−0.003	−0.53	0.598
SALES	0.002	0.20	0.841
ROA	−0.123	−3.27	0.001***
LOSS	0.006	1.03	0.306
BIGF	0.049	2.65	0.008***
Cons	1.905	18.02	0.000***
Observations	1,813
Adj. R^2	0.040
F-value	3.54
Prob. F	0.000***

^{Note: a}Robust standard error is used due to the non-normality and heteroscedasticity of residuals.

^bPanel regression using fixed-effect method.

***represent significance at level 0.01

Table 5. Robustness checks regression results^a

	(1) ARL^b			(2) ARL^b
Variable	Coef.	t-stat.	p-value	Coef.	t-stat.	p-value
BTDV	0.057	1.15	0.250
ETRV				0.004	1.04	0.300
CAEQ	−0.050	−1.31	0.190	−0.050	−1.31	0.190
DER	0.003	1.04	0.300	0.003	1.06	0.289
EPS	−0.000	−0.01	0.996	0.000	0.04	0.967
AGE	0.005	0.34	0.737	0.006	0.41	0.681
SIZE	−0.005	−0.96	0.340	−0.006	−1.03	0.304
SALES	0.000	0.02	0.987	−0.000	−0.05	0.959
ROA	−0.114	−3.05	0.003***	−0.114	−3.05	0.002***
LOSS	0.006	1.03	0.304	0.006	1.06	0.292
BIGF	0.048	2.58	0.010***	0.048	2.55	0.011**
MTB	−0.004	−2.40	0.017**	−0.004	−2.38	0.018**
NPPE	−0.020	−0.98	0.329	−0.018	−0.90	0.370
FCF	0.002	0.20	0.839	0.003	0.29	0.776
Cons	1.966	19.22	0.000***	1.973	19.03	0.000***
Observation	1,813			1,813
Adj. R^2	0.044			0.043
F-value	3.53			3.27
Prob. F	0.000***			0.000***

^{Note: a}Robust standard error is used due to the non-normality and heteroscedasticity of residuals.

^bPanel regression using the fixed effect method.

**and *** represent significance at levels 0.10, 0.05, and 0.01

Table

Variables	Definition
Dependent variable:
ARL	Audit report lag, measured as logarithm of number of days between fiscal year-end and date of the audit report.
Independent variable:
BTDV	Book-tax difference volatility (represents corporate tax risk), measured as a three-year (year t-1 to t + 1) standard deviation of book-tax differences (pretax income deducted by income tax expense/statutory tax rate, scaled by total assets).
Control variables:
CAEQ	Cash and equivalent, scaled by total assets.
DER	Firm leverage, the ratio of total debt to total equity.
EPS	Earnings per share.
AGE	The age of the firm, measured as the natural logarithm of firm age since it was listed on the stock exchange.
SIZE	The size of the firm is measured as a natural logarithm of total assets.
SALES	Firm’ sales, scaled by total assets.
ROA	Return on assets, measured as net income divided by total assets.
LOSS	Dummy variable, 1 if negative net income, 0 otherwise.
BIGF	Dummy variable, 1 if audited by one of the Big 4 auditors, else 0.
Alternative measure of corporate tax risk:
ETRV	Effective tax rates volatility, measured as a three-year (year t-1 to t + 1) standard deviation of effective tax rate.
Additional control variables:
MTB	Market to book, the ratio of the market value to the book value.
NPPE	Net property, plant, and equipment, scaled by total assets.
FCF	Free cash flows, scaled by total assets.

Table

Test	Hypothesis	Statistics (p-value)	Method used
Chow test	H0: Common effect H1: Fixed effect	7.09 (0.000)	Fixed effect
LM test	H0: Common effect H1: Random effect	1309.17 (0.000)	Random effect
Hausman test	H0: Random effect H1: Fixed effect	51.26 (0.000)	Fixed effect

Table

Test	Statistics (p-value)	Conclusion
Breusch-Pagan	27.55 (0.000)	Heteroscedastic

Table

Test	Statistics (p-value)	Conclusion
Wooldridge	17.99 0.000	Autocorrelated

Data availability statement

The financial data are accessible through Thomson Reuters and Osiris Database.