Date of submission: September 12, 2023; date of acceptance: January 3, 2024. * Contact information: benhassoune.amira@yahoo.fr, Faculty Economic Sciences and Management of Tunis, Tunis University, Tunisia, phone: +216 98 943 478; ORCID ID: https://orcid.org/0009-0004-8893-666X. ** Contact information: manel.hadriche@yahoo.fr, Faculté des Sciences Économ- iques et de Gestion de Nabeul, Campus Universitaire Mrezga-8000 Nabeul, Tunisia, phone: +216 55 741 655; ORCID ID: https://orcid.org/0000-0003-2873-6100. Copernican Journal of Finance & Accounting e-ISSN 2300-3065 p-ISSN 2300-12402023, volume 12, issue 4 Ben Hassoun, A., & Hadrich, M. (2023). Does Tax Aggressiveness Lead to More Earnings Man- agement: the Case of Tunisian Firms. Copernican Journal of Finance & Accounting, 12(4), 9–25. http://dx.doi.org/10.12775/CJFA.2023.018 amira ben Hassoun* Tunis El Manar University manel HadricH** Tunis El Manar University does tax aggressiveness lead to more earnings management: tHe case of tunisian firms Keywords: tax aggressiveness, earnings management, discretionary accruals, emerg- ing market. J E L Classification: M42, L11, G38. Abstract: The aim of this study is to determine whether a firm tax avoidance activity can be used as an instrument for corporate earnings management in an emerging mar- ket called Tunisia. The study also investigates the role of firm size, leverage and au- dit quality on earnings management. Evidence of earnings management is examined by focusing on accounting earnings management. From a sample of 20 Tunisian listed firms from 2017 to 2019, the results estimated from the linear regression model argue that tax aggressiveness has a positive effect on earnings management but not signifi- cant. Furthermore, the results show that larger Tunisian firms exhibit more earnings management. However, findings don’t show any significant effects of leverage and audit quality on earnings management. Amira Ben Hassoun, Manel Hadrich1010  Introduction Introduction Tax aggressiveness is an area that continues to attract considerable attention from both academics and policy makers. This may reflect the importance that managers place on taxes which affect their bottom line and financial condition. As stated by Shackelford and Shevlin (2001), the managers’ decision reflects a trade-offs between tax and financial reporting benefits. On one hand, manag- ers can disclose higher income to shareholders but at the same time incur tax costs. Managers, on the other hand, can report lower incur financial reporting costs thus disclose lower incomes to shareholders. Tax aggressiveness presents an opportunity for managers to practice earn- ings management by minimizing income tax owed to realize profit target prof- its while directing firms’ resources for personal needs. This happens because management may be able to select accounting procedures or policies that are advantageous to them personally when ownership and control are separated (Putri, Rohman & Chariri, 2016; Blaylock, Shevlin & Wilson, 2012). Given the opacity and complexity of tax aggressiveness activities, managers may hide bad news to achieve its opportunistic goals (Armstrong, Blouin & Lack, 2012). Desai and Dharmapala (2009) argued that these characteristics may favor managerial opportunism. The majority of recent research in developing mar- kets have been done to explain how earnings management principles relate to firm-level characteristics (e.g. profitability, size, and leverage) or corporate governance mechanisms (e.g. board size, independent directors, CEO duali- ty, and audit quality) and largely ignore how tax aggressiveness impact earn- ings management decisions. Hence, it is intriguing to explore areas that earlier scholars mostly ignored in order to learn new insights about the relationship between aggressiveness tax avoidance and earnings management. In this light, the current study’s goal is to examine how aggressiveness tax avoidance and earnings management interact in Tunisian firms. This study makes several contributions to the existing literature. First, we complete studies relating to the determinants of earnings management by iden- tifying the tax avoidance incidence in the context of a developing country like Tunisia, which deepens our understandings about the determinants of firms’ earnings information production. Second, the paucity of research on how com- pany tax regulations impact earnings management in less developed nations is the primary impetus for studying the Tunisian market. It should be noted doEs tax aggrEssivEnEss lEad to morE Earnings managEmEnt… 1111 from an economic perspective that Tunisia is one of the nations with high debt capital markets and incentive tax regulations that support investment. Final- ly, these findings could have some practical and regulatory repercussions that alert regulators to the need for new restrictions to limit earnings management. The remainder of this paper is structured as follows. In section 2, we give an overview of the relevant literature and derive our hypothesis. In section 3, we describe the research methodology. The results are provided and discussed in section 4. Section 5 concludes this paper. Literature ReviewLiterature Review Aggressiveness tax avoidanceAggressiveness tax avoidance Tax aggressiveness refers to the practices taken by a firm to reduce its tax burden through legal tax planning (tax avoidance) and illegal (tax evasion). According to Sunarto, Widjaja and Oktaviani (2021), this action is taken to minimize or reduce the tax costs. In an agency framework where managers frequently act in their own interests and do not prioritize shareholders’ inter- ests, the examination of a tax aggressiveness choice is embedded (Salehi, Mir- zaee & Yazdani, 2017). Tax literature argued that tax avoidance serves as one of the motivations for earnings management (Wang & Chen, 2012). Referring to Scott and Scott (2015) definition, earning management can be predicted as the managerial be- havior of choosing accounting policies for specific purposes. Two perceptions of earnings management are proposed by Desai and Dharmapala (2009). On one hand, earnings management is regarded as an opportunistic behavior by managers to maximize their own interests. On the other hand, effective con- tracts may be used to explain earnings management. One of the assumptions of agency theory is that management of earnings is an opportunistic management practice. According to a stand of literature (Slemrod, 2004; Chen & Chu, 2005; Crocker & Slemrod, 2005), the link between tax avoidance activities and agency problems is inherent in the context of owned-public firms. Corporate tax avoidance can be used by managers to man- age earnings. Earnings management, which reflects the opportunistic nature of management, is a practice that is harmful to firms. The existence of agency problems may call into question whether the tax avoidance measures adopted Amira Ben Hassoun, Manel Hadrich1212 by the firms are in the interests of shareholders. Instead, management applies various schemes and methods to tax avoidance activities as a means of safe- guarding personal interests that are inconsistent with corporate goals. Therefore, firms with aggressiveness tax avoidance are more likely to prac- tice opportunistic earnings management. We expect that aggressiveness tax avoidance to be positively related to earnings management. Therefore, formu- late the following hypothesis: H1: For Tunisian firms, highly tax aggressiveness are more likely to undergo earnings management. Firm sizeFirm size Early studies based on positive accounting theory used firm size as an indica- tor of the firm’s political visibility. According to Watts and Zimmerman (1978), large firms are more sensitive to political cost pressures than small firms and are consequently subject to greater transfer of wealth through mechanisms as taxes and insurance. As a result, managers of large firms seek to escape politi- cal pressures by choosing accounting policies that will lower earnings, which aims to reduce the political costs and therefore avoid other government regu- lations that reduce firm income (Cormier, Magnan & Morard, 1998). This con- dition indicates that firm size can motivate management to practice earnings management. Building on this framework, empirical research documents a positive re- lation between firm size and earnings management (Ali, Noor, Khurshid & Mahmood, 2015; Türegün, 2016). For example, Jones (1991) supported the idea that managers are more likely to manipulate accruals during import-relief in- vestigation in order to reduce earnings. Similarly, Türegün (2016), using data from 179 firms listed on the Turkey stock exchange, investigates the effect of borrowing costs, firm size and characteristics of board of directors on earn- ings management and finds that large firms are more likely to practice earn- ings management. Charfeddine, Riahi and Omri (2013) reach a similar conclusion in Tunisian context. Using a sample of 19 listed companies over the period 2003-2009, they investigate the factors that determine earnings management and show how managers choose practices that minimize earnings in order to pay less in taxes. doEs tax aggrEssivEnEss lEad to morE Earnings managEmEnt… 1313 Therefore, large firms are more likely to practice opportunistic earnings manage- ment. We expect that firm size to be positively related to earnings management. H2: For Tunisian firms, larger firms are more likely to undergo earnings management. LeverageLeverage A review of literature on earnings management highlights that firms use lev- erage for smooth operations. To protect their private control benefits and to conceal from outsiders, Leuz, Nanda and Wysocki (2003) provide evidence that insiders are motivated to use earnings management in countries with weak shareholders protection. Several studies have been conducted on earnings management explain usually the firms’ leverage development by the trade- off theory, suggesting that firms choose their optimal leverage that balances the benefits and the cost of using debt (Kraus & Litzenberger, 1973; Lazzem & Jilani, 2018). Benefits include reduced agency conflicts between firm agents and owners, while costs include the possibility of bankruptcy. By damping asymmetric in- formation issue that present a major source of earnings management practic- es, agency problems can be reduced. Moreover, according to positive account- ing theory, the most common incentives for earnings management are bonus plan, political costs, and debt covenants (Watts & Zimmerman, 1990). Consist- ent with this theory, several previous studies (Beatty & Weber, 2003; Dichev & Skinner, 2002) have provided evidence that mangers use voluntary accounting changes in leveraged firms in order to increase earnings and to avoid debt cov- enant violations. Consistent with the argument above, a large part of studies have document- ed the positive impact of leverage on earnings management practices. For ex- ample, Abbadi, Hijazi and Al-Rahahleh (2016) investigate the effect of corpo- rate governance quality on earnings management in Jordanian context and provide evidence that higher leveraged firms are more interested in managing their earnings. Likewise, Sercu, Vander-Bauwhede and Willekens (2006) reach similar conclusion in Belgian context. Analyzing a sample of 583 non-listed Bel- gian firms, they show that earnings management is more significantly related to bank debts. Recently, Tulcanaza-Prieto, Lee and Koo (2020) investigate non- Amira Ben Hassoun, Manel Hadrich1414 financial firms listed on the Korea market, and also find a positive relationship between leverage and earnings management. In accordance to debt covenants hypothesis, Lazzem and Jilani (2018) find for French firms that managers of highly indebted firms engage in earnings management activities to avoid debt covenants violation. Charfeddine et al. (2013) reach similar conclusion in Tunisian context. On the other hand, there is some empirical evidence to support the opposite view (Qin, 2020; Zamri, Rah- man & Isa, 2013). Lazzem and Jilani (2018) argued that these different conclu- sions can result from the differences in countries’ legal systems. Therefore, basing on Tunisian empirical outcomes (Charfeddine et al., 2013), we expect to observe a positive relationship between leverage and earn- ings management. Therefore, formulate the following hypothesis: H3: For Tunisian firms, highly leveraged firms are more likely to undergo earnings management. Audit QualityAudit Quality The recent corporate accounting scandals have triggered significant interest in the role of external auditor in ensuring the quality of corporate earnings, raising concerns about audit quality and its ability to limit earnings manage- ment (Velury, Reisch & O’Reilly, 2003). Varieties of research works have exam- ined the effect of audit quality on earnings management, considering two in- put-based indicators of audit quality (audit size and audit fees). According to Becker, DeFond, Jiambalvo and Subramanyam (1998) and Fran- cis, Maydew and Sparks (1999), Big six auditors have higher tendency to iden- tify and detect earnings management do to their greater knowledge, and act to curb opportunistic earnings management in order to protect their reputation. Given their larger client base, Krishnan (2003) argued that Big 6 auditors have greater incentive to protect their reputation that non-Big 6 auditors, and there- fore higher risk to lose clients. Houqe, Ahmed and Zijl (2017) reach a similar conclusion in Indian context. Using a large sample of listed firms in India, they find that firms audited by high quality auditors exhibit lower levels of earnings management. Moreover, Rhee, Rhee and Li (2021) analyze, in China context, the difference from audit quality of big auditors and non-big auditors and they find that the big auditors provide higher audit service quality to prevent their cli- ents’ earning management than non-big auditors. As noted by Alzoubi (2018), audit quality can be viewed as a monitoring mechanism that prevents manag- doEs tax aggrEssivEnEss lEad to morE Earnings managEmEnt… 1515 ers from manipulating firm earnings and argued that high audit quality reduce the information asymmetry that occurs between managers and stockholders. Using a sample of 72 Jordanian industrial firms for the period from 2006 to 2012, they report a negative effect of audit quality on discretionary accruals. Considering these prior findings, the following hypothesis is tested accord- ingly: H4: For Tunisian firms, highly audit quality are less likely to undergo earn- ings management. The Research Methodology The Research Methodology and the Course of the Research Processand the Course of the Research Process Sample selectionSample selection To examine the importance of tax aggressiveness on earnings management de- cisions, we started with all the Tunisian firms listed on the Tunisian Stock Ex- change publishing their financial reports in the period from 2017 to 2019. Data collection was halted in 2019 due to the COVID pandemic. The initial sample consisted of a total of 79 firms listed on 2017. We then removed 33 financial in- stitutions which have specific characteristics. We also eliminated 20 totally ex- porting firms due to their exemptions from taxation and 6 firms with missing data. After restatement, our procedure results in a total number of 60 obser- vations and 20 firms. We manually collected annual financial statements data available on the Tunisian Stock Exchange website (http://www.bvmt. com.tn). Table 1. Sample Selection Number of Firms Number of Firm-Years Observations with available Tunis Stock Exchange data (2017 to 2019) 79 237 Less: Observations of financial institutions (33) (99) Less: exporting firms (20) (60) Less: Observations missing accounting data (6) (18) Final Sample 20 60 S o u r c e : own study. Amira Ben Hassoun, Manel Hadrich1616 Variable measurementVariable measurement Dependent variable: Discretionary accruals earnings managementDependent variable: Discretionary accruals earnings management For the purpose of this study, discretionary accruals were applied to proxy for earnings management. The modified Jones model as proposed by Dechow, Sloan and Sweeney (1995) was used. This is the most prevalent model in earn- ings management studies. The model is defined as follows: missing data. After restatement, our procedure results in a total number of 60 observations and 20 firms. We manually collected annual financial statements data available on the Tunisian Stock Exchange website (http://www.bvmt. com.tn). Table 1. Sample Selection Number of Firms Number of Firm-Years Observations with available Tunis Stock Exchange data (2017 to 2019) 79 237 Less: Observations of financial institutions (33) (99) Less: exporting firms (20) (60) Less: Observations missing accounting data (6) (18) Final Sample 20 60 Source: own study. Variable measurement Dependent variable: Discretionary accruals earnings management For the purpose of this study, discretionary accruals were applied to proxy for earnings management. The modified Jones model as proposed by Dechow, Sloan and Sweeney (1995) was used. This is the most prevalent model in earnings management studies. The model is defined as follows: ���,� ����� = α1 � ����� + α2 �△����� � △������ ����� + α3 ���������� +εit Where TA is the total accruals, ΔREV is the change in sales from year t-1 to year t, △RECit is the change in accounts receivable from year t-1 to year t; PPE is the gross property, plant and equipment, A is the total assets, ε denotes the discretionary accruals, and the subscripts i and t denote firm and year respectively. The residuals of Eq1 represent the discretionary accruals of companies through the modified Jones model that are determined as follows: DAi,t = ���,������ –( â1 � ����� + â2 �△����� � △������ ����� + â3 ��� �,� � �,��� ) Obviously, the higher values of discretionary accruals suggest an upward accounting EM. In the following, EM = DA. Independent variable: Tax avoidance In this paper, we are interested by the firms’ aggressiveness tax avoidance. Following the accounting and tax literature (Gaaya, Lakhal & Lakhal, 2017; Frey, 2018; Aronmwan & Okaiwele, 2020), the effective tax rate “ETR” is used as an appropriate measure for assessing Where TA is the total accruals, ΔREV is the change in sales from year t-1 to year t, ΔRECit is the change in accounts receivable from year t-1 to year t; PPE is the gross property, plant and equipment, A is the total assets, ε denotes the discretionary accruals, and the subscripts i and t denote firm and year respectively. The residuals of Eq1 represent the discretionary accruals of companies through the modified Jones model that are determined as follows: missing data. After restatement, our procedure results in a total number of 60 observations and 20 firms. We manually collected annual financial statements data available on the Tunisian Stock Exchange website (http://www.bvmt. com.tn). Table 1. Sample Selection Number of Firms Number of Firm-Years Observations with available Tunis Stock Exchange data (2017 to 2019) 79 237 Less: Observations of financial institutions (33) (99) Less: exporting firms (20) (60) Less: Observations missing accounting data (6) (18) Final Sample 20 60 Source: own study. Variable measurement Dependent variable: Discretionary accruals earnings management For the purpose of this study, discretionary accruals were applied to proxy for earnings management. The modified Jones model as proposed by Dechow, Sloan and Sweeney (1995) was used. This is the most prevalent model in earnings management studies. The model is defined as follows: ���,� ����� = α1 � ����� + α2 �△����� � △������ ����� + α3 ���������� +εit Where TA is the total accruals, ΔREV is the change in sales from year t-1 to year t, △RECit is the change in accounts receivable from year t-1 to year t; PPE is the gross property, plant and equipment, A is the total assets, ε denotes the discretionary accruals, and the subscripts i and t denote firm and year respectively. The residuals of Eq1 represent the discretionary accruals of companies through the modified Jones model that are determined as follows: DAi,t = ���,������ –( â1 � ����� + â2 �△����� � △������ ����� + â3 ��� �,� � �,��� ) Obviously, the higher values of discretionary accruals suggest an upward accounting EM. In the following, EM = DA. Independent variable: Tax avoidance In this paper, we are interested by the firms’ aggressiveness tax avoidance. Following the accounting and tax literature (Gaaya, Lakhal & Lakhal, 2017; Frey, 2018; Aronmwan & Okaiwele, 2020), the effective tax rate “ETR” is used as an appropriate measure for assessing Obviously, the higher values of discretionary accruals suggest an upward accounting EM. In the following, EM = DA. Independent variable: Tax avoidanceIndependent variable: Tax avoidance In this paper, we are interested by the firms’ aggressiveness tax avoidance. Fol- lowing the accounting and tax literature (Gaaya, Lakhal & Lakhal, 2017; Frey, 2018; Aronmwan & Okaiwele, 2020), the effective tax rate “ETR” is used as an appropriate measure for assessing aggressiveness tax avoidance as it covers both permanent and temporary aggressiveness tax avoidance strategies. doEs tax aggrEssivEnEss lEad to morE Earnings managEmEnt… 1717 This measure represents the alternative measure of aggressiveness tax avoidance widely used in recent literature (Salhi, Riguen, Kachouri & Jarboui, 2019; Alkurdi & Mardini, 2020; Mouakhar, Kachouri, Riguen & Jarboui, 2020; Abdelfattah & Aboud, 2020). Then, the “ETR” is calculated as the tax expense for the year, scaled by the pre-tax income. aggressiveness tax avoidance as it covers both permanent and temporary aggressiveness tax avoidance strategies. This measure represents the alternative measure of aggressiveness tax avoidance widely used in recent literature (Salhi, Riguen, Kachouri & Jarboui, 2019; Alkurdi & Mardini, 2020; Mouakhar, Kachouri, Riguen & Jarboui, 2020; Abdelfattah & Aboud, 2020). Then, the “ETR” is calculated as the tax expense for the year, scaled by the pre-tax income. Total tax expense Pre tax income Control variables The modeling includes three control variables that may influence earnings management. The first is the firm size (SIZE) measured by the logarithm of total assets (Taylor & Richardson, 2012; Khunkaew & Qingxiang, 2019). The leverage level (LEV) is the second variable. The Total liabilities-to-total equity ratio is a proxy for leverage (Nurdiniah & Herlina, 2015; Marchellina & Firnanti, 2020) that shows the total amount of debt a company has relatively to its assets. The last control variable is the audit quality (AUD). It is a binary variable denoting a BIG4 auditor is added, as high quality auditors provide a constraint on earnings management (Van Tendeloo & Vanstraelen, 2008; Richardson, Taylor & Lanis, 2013). ‘AUD’ takes the value 1 if the firm hires an auditor BIG4 and 0 if not. Table 2 summarizes the definitions of the variables employed in this study. Table 2. Summary of variable measurement Variable Abbreviation Definition Earnings management DA The discretionary accruals estimated following the modified Jones model Tax aggressiveness ETR The tax expense for the year, scaled by the pre-tax income Firm size SIZE The natural logarithm of total assets Firm leverage LEV Total liabilities-to-total equity ratio Auditor size AUD Dummy variable which assumes the value of 1 if the firm is audited by a Big Four auditor and 0 otherwise. Source: own elaboration. Model specification To investigate the determinants of earnings management, the technique of linear regression is used to test the relationship between the dependent variable (earnings management) and a set of explanatory variables (aggressiveness tax avoidance, firm size, leverage level, and Control variablesControl variables The modeling includes three control variables that may influence earnings management. The first is the firm size (SIZE) measured by the logarithm of to- tal assets (Taylor & Richardson, 2012; Khunkaew & Qingxiang, 2019). The lev- erage level (LEV) is the second variable. The Total liabilities-to-total equity ra- tio is a proxy for leverage (Nurdiniah & Herlina, 2015; Marchellina & Firnanti, 2020) that shows the total amount of debt a company has relatively to its as- sets. The last control variable is the audit quality (AUD). It is a binary variable denoting a BIG4 auditor is added, as high quality auditors provide a constraint on earnings management (Van Tendeloo & Vanstraelen, 2008; Richardson, Tay- lor & Lanis, 2013). ‘AUD’ takes the value 1 if the firm hires an auditor BIG4 and 0 if not. Table 2 summarizes the definitions of the variables employed in this study. Table 2. Summary of variable measurement Variable Abbreviation Definition Earnings management DA The discretionary accruals estimated following the modified Jones model Tax aggressiveness ETR The tax expense for the year, scaled by the pre-tax income Firm size SIZE The natural logarithm of total assets Firm leverage LEV Total liabilities-to-total equity ratio Auditor size AUD Dummy variable which assumes the value of 1 if the firm is audited by a Big Four auditor and 0 otherwise S o u r c e : own elaboration. Amira Ben Hassoun, Manel Hadrich1818 Model specificationModel specification To investigate the determinants of earnings management, the technique of lin- ear regression is used to test the relationship between the dependent variable (earnings management) and a set of explanatory variables (aggressiveness tax avoidance, firm size, leverage level, and audit quality). Data were analyzed us- ing STATA, a widely used and accepted panel data estimation model. This mod- el is proposed to test our hypothesis in this study: DAi,t = α + β1ETRi,t + β2SIZEi,t + β3LEVi,t + β4AUDi,t + εi,t The Outcome of the Research ProcessThe Outcome of the Research Process Empirical results and commentsEmpirical results and comments Descriptive statisticsDescriptive statistics Table 3 reports the descriptive statistics for the regression variables consid- ered in the study model for the period 2017 to 2019. The table is separated into two panels. The descriptive statistics for continuous and dichotomous varia- bles for the full sample are summarized in panels A and B, respectively. Panel A in table 3 shows that the mean value of DA was -0.015, suggesting that Tuni- sian listed firms tend to be more conservative and more likely to be engaged with income-decreasing (negative change) earnings management. Over the pe- riod 2017-2019, ETR, the main explanatory variable, had a mean value 0.149 and the standard deviation is 0.265. This percentage was below the Tunisian statutory tax rate (35%). This suggests that tax aggressiveness represent an important mean to decrease tax due and increase in after-tax income of Tuni- sian listed firms. This result shows that due to the tax benefits given to busi- ness and regulatory loopholes which allow businesses to avoid tax, Tunisian firms generally pay less than half of the statutory rate. Regarding firm size, the mean was 19 and the standard deviation of 1.449 suggests low variability in size. However, it is interesting to observe that finan- cial debt is averagely -0,198 this means that the Tunisian firms have negative shareholder equity. Finally, we denoted that on average 40% of Tunisian firms are audited by at least one of the “BIG4”. doEs tax aggrEssivEnEss lEad to morE Earnings managEmEnt… 1919 Tables 3. Descriptive Statistics Panel A: Descriptive statistics of continuous variables (full sample N=60) Variable Min. Max. Mean Std .Dev. DA -0.3096 0.2657 -0.0151 0.1008 ETR -0.8997 1.0948 0.1495 0.2659 SIZE 16.2561 22.0244 19.0002 1.4497 LEV -60.653 27.2667 -0.1984 8.8541 Panel B: Descriptive statistics – Dichotomous variables Variable Frequency of 1’s (Yes) Frequency of 0’s (No) Percentage of 1’s (Yes) Percentage of 0’s (No) AUD 24 36 40% 60% S o u r c e : own elaboration. Multivariate resultsMultivariate results Conducting linear regression analysis allowed us to estimate the association between earnings management and aggressiveness tax avoidance. According to table 4, the coefficient of the effective tax rate (ETR) of listed firms is positive but the relationship seems insignificant, partially supporting our first hypoth- esis (H1), this is similar to the results of Abubakar, Mansor and Wan-Mohamad (2021) conducting a study on Nigerian listed firms. This means that firms with low tax rates often exhibit higher tax aggressiveness, which is possible through earnings management. For the firm size (SIZE), the coefficient is positive and statistically signifi- cant; this validated our second hypothesis (H2). The result supports previous research (Saleh & Ahmed, 2005; Wang, 2014), and shows that larger firms tend to have higher accruals. We also report a positive coefficient for financial lever- age but not significant, partially supporting hypothesis 3. This result is consist- ent with Bassiouny, Soliman and Ragab (2016) who found that discretionary accruals are positively related to financial leverage for Egyptian firms. The analysis results show that the coefficient corresponding to the audit quality variable (BIG4) is negative; however, it is statistically insignificant, partially supporting hypothesis 4 The results are in line with the findings of Amira Ben Hassoun, Manel Hadrich2020 Bassiouny et al. (2016), Gerayli, Yanesari and Ma’atoofi (2011) and Chan, Luo and Phyllis (2015), who found that auditor quality is negatively associated with the earnings management. According to this finding, firms who engage BIG4 auditor have lower discretionary accruals as compared to firms that hire non- Big 4 audit firms. Table 4. Tax aggressiveness and earnings management Variables Predicted sign AD ETR + 0.0394 (0.75) SIZE + 0.0163* (1.76) LEV + 0.0007 (0.49) AUD - -0.0324 (-1.15) CONSTANT -0.3183* (-1.82) R² 0.07 Observations 60 * Significant at the 0.1 level. ** Significant at the 0.05 level. *** Significant at the 0.01 level. Note: t statistics in parentheses S o u r c e : own elaboration.  Conclusion Conclusion This paper attempted to analyze the impact of aggressiveness tax avoidance on earnings management in the Tunisian context. Specifically, we underlined the factors, which could be related intimately to aggressiveness tax avoidance and affected earnings management. We stressed the firm size, financial lever- age and audit quality. To do so, we used a sample of Tunisian listed firms over the 2017- 2019 periods. Based on linear regression analysis, the most significant finding of this re- search is that larger firms tend to have large value of accruals. Consistent with the findings of Saleh and Ahmed (2005) and Wang (2014), the coefficient cor- doEs tax aggrEssivEnEss lEad to morE Earnings managEmEnt… 2121 responding to firm size variable is positive, implying that discretionary accru- als are positively related to the firm size. In contrast, the result indicates that tax aggressiveness, inconsistent with our expectations, has a positive impact on earnings management. An alternative explanation for this finding is that firms with low tax rates are an indication of high tax aggressiveness, which is possible through earnings management. The findings show that some control variables such as the financial debt and the audit quality are inefficient in the studies context. However, some limitations are highlighted in this study. First, the sample population is rather small, only 20 firms having been investigated. It may not be representative of the population of Tunisian firms. To increase the study’s generalizability and robustness, future research could extend the sample by taking into account all the Tunisian firms-listed and unlisted firms. Second, in this study the researchers only included executive characteristics (firm size, leverage) and an external corporate governance mechanism (audit quality) as control variables. Future research is suggested to include more con- trol variables (such as internal corporate governance mechanisms, e.g. owner- ship structure, board directors) in the analysis that could likely product oth- er interesting results. Finally, in this study the proxy used is the effective tax rate (ETR). Future research could examine the impact of tax aggressiveness on earnings management by using more proxy such as book-tax differences (BTD).  References References Abbadi, S.S., Hijazi, Q.F., & Al-Rahahleh, A.S. (2016). Corporate governance quality and earnings management: Evidence from Jordan. 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