Tax Alignment and Conditional Conservatism : An Empirical Analysis of European Private Firms

The aim of this study is to investigate whether reporting based on conditional conservatism differs in high versus low tax alignment countries in a sample of medium and large-sized private firms from 13 European countries. The results suggest that reporting conservatism is more likely to occur in high tax alignment countries and that this result only holds for firm-years with positive cash flow from operations. When it comes to negative cash flow from operations, we observe no differences in reporting conservatism of private firms between high and low tax alignment countries. Thus, the study provides a taxation-based explanation for conditional accounting conservatism in private firms