The Impact of Tax Compliance on Future Certainty: A Simulative Artificial Intelligence Modeling of Optimization Portfolios

Muljanto Siladjaja*  -  Univeritas Dirgantara Marseekal Suryadarma, Indonesia

(*) Corresponding Author
DOI: 10.30659/ekobis.27.1.1-22

Tax compliance is proven as a quality measurement, indicating the majority probability of achieving future certainty without the possibility of total loss of investment returns, and it is a new indicator of no tax avoidance. Unambiguously, the dividend policy's signaling effect predicts future firm value: management tends to adopt a payout policy with high growth to take advantage of low-cost capital financing, which is associated with lower internal conflict intensity. The concept of the information usefulness of financial reporting has been tested using a multilevel, multiple-data-panel regression with a sample of 154 Indonesian manufacturing listed companies. This model includes a dummy variable reflecting high or low earnings quality as a guideline for highly prospective investment decisions. This statistical testing shows that investors have a favorable view of high compliance, with tax management designed to be more "prudent". The positive market price movement reflected the view that aggressive tax accruals had negatively affected investors' perceptions, and that adherence to accounting standards and tax compliance serves as a practical benchmark for assessing management's ethical decisions in illustrating real future earnings. In testing the rational decision-making process, the decision tree, Bayes' Theorem, and payoff matrix table provide supporting evidence for game theory, including artificial intelligence-based modeling to estimate firm value precisely, and illustrate the real future earnings as a constructive impact of positive earnings management. This payout policy should be established as a minimum standard to enhance transparency regarding future sustainability and serve as a valid indicator of expected returns.

  1. Alipour, M., Ghanbari, M., Jamshidinavid, B., & Taherabadi, A. (2019a). The relationship between environmental disclosure quality and earnings quality: a panel study of an emerging market. Journal of Asia Business Studies, 13(2). https://doi.org/10.1108/JABS-03-2018-0084
  2. Askari, G., Gordji, M. E., & Park, C. (2019). The behavioral model and game theory. Palgrave Communications, 5(1), 1–8. https://doi.org/10.1057/s41599-019-0265-2
  3. Ason, Y. J., Bujang, I., Jidwin, A. P., & Said, J. (2021). A Manifestation of Accounting Conservatism: A Case Study in Malaysia. Journal of Asian Finance, Economics and Business, 8(2), 365–371. https://doi.org/10.13106/jafeb.2021.vol8.no2.0365
  4. Báez-Díaz, A., & Alam, P. (2012). Tax conformity of earnings and the pricing of accruals. In Review of Quantitative Finance and Accounting (Vol. 40, Issue 3). https://doi.org/10.1007/s11156-012-0275-2
  5. Bassiouny, S. W., & Ragab, Mohamed Moustafa, Soliman, A. (2016). The impact of ownership structure on dividend payout policies : an empirical study of the listed companies in Egypt. The Business and Management Review, 7(2), 91–102.
  6. Carsten Burhop & Selgert, F. (2025). Dividend Policy: An Empirical Analysis for Imperial Germany. German Economic Review.
  7. Chaudhary, G. M., Hashmi, S. H., & Younis, A. (2016). Does Dividend Announcement Generate Market Signal? Evidence from Pakistan. International Journal of Economics and Financial Issues, 6(1), 65–72.
  8. Choudhary, P., Koester, A., & Shevlin, T. (2016a). Measuring income tax accrual quality. Review of Accounting Studies, 21(1), 89–139. https://doi.org/10.1007/s11142-015-9336-9
  9. Choudhary, P., Koester, A., & Shevlin, T. (2016b). Measuring income tax accrual quality. Review of Accounting Studies, 21(1), 89–139. https://doi.org/10.1007/s11142-015-9336-9
  10. Damodaran, A. (2012). Investment Valuation: Second Edition. ITM University Bus Stand, Shyam Plaza, LIC Road Near New, Pandri, Raipur, Chhattisgarh 492001, India, 1–1372. https://doi.org/10.1016/B978-0-7020-2797-0.00001-1
  11. Delgado, F. J., Rodríguez, E. F., Fernández, R. G., Landajo, M., & Arias, A. M. (2023a). Tax avoidance and earnings management : a neural network approach for the largest European economies. Financial Innovation, 9(19), 1–25. https://doi.org/10.1186/s40854-022-00424-8
  12. Delgado, F. J., Rodríguez, E. F., Fernández, R. G., Landajo, M., & Arias, A. M. (2023b). Tax avoidance and earnings management : a neural network approach for the largest European economies. Financial Innovation, 9(19), 1–25. https://doi.org/10.1186/s40854-022-00424-8
  13. Deng, L., Li, S., & Liao, M. (2017a). Dividends and earnings quality: Evidence from China. International Review of Economics & Finance, 48 (c), 255–268. https://doi.org/10.1016/j.iref.2016.12.011
  14. Deng, L., Li, S., & Liao, M. (2017b). Dividends and earnings quality: Evidence from China. International Review of Economics & Finance, 48 (c), 255–268. https://doi.org/10.1016/j.iref.2016.12.011
  15. Dopuch, N., Mashruwala, R., Seethamraju, C., & Zach, T. (2012). The impact of a heterogeneous accrual-generating process on empirical accrual models. Journal of Accounting, Auditing and Finance, 27(3), 386–411. https://doi.org/10.1177/0148558X11409157
  16. Elayan, F. A., Li, J., Liu, Z. F., Meyer, T. O., & Felton, S. (2016). Changes in the Covalence Ethical Quote, Financial Performance, and Financial Reporting Quality. Journal of Business Ethics, 134(3), 369–395. https://doi.org/10.1007/s10551-014-2437-8
  17. Garel, A., Martin-Flores, J. M., Petit-Romec, A., & Scott, A. (2021). Institutional investor distraction and earnings management. Journal of Corporate Finance, 66. https://doi.org/10.1016/j.jcorpfin.2020.101801
  18. Hair, J. Jr., Black, William. C., Babin, Barry. J., & Anderson, R. (2010). Multivariate Analysis : Global Perspective, Seventh Edition, 2010, Upper Saddle River, New Jersey : Pearson Prentice Hall.
  19. Harris, T. (2024). Managers' perception of product market competition and earnings management: a textual analysis of firms' 10-K reports. Journal of Accounting Literature, ahead-of-print).
  20. Heizer, Jay, Render, Barry, and Munson, C. (2017). Operations Management : Sustainability and Supply Chain Management. 11th.
  21. Helms, S., Koch, R., & Scheider, T. B. (2025). Tax system characteristics and country-level differences in earnings management. Journal of Business Economics. https://link.springer.com/article/10.1007/s11573-025-01239-6
  22. Hlel, K. (2024a). Tax avoidance and earnings management: Evidence from French firms. International Journal of Financial Engineering.
  23. Hlel, K. (2024b). Tax avoidance and earnings management: Evidence from French firms. International Journal of Financial Engineering. https://doi.org/10.1142/S2424786324500130
  24. Homer, Sidney, Leibowitz, M. L., Bova, Anthony, & Kogelman, S. (2013). Inside the Yield Book: The Classic That Created the Science of Bond Analysis. John Wiley & Sons, Inc.
  25. Hutton, A. P., & Stocken, P. C. (2021). Prior Forecasting Accuracy and Investor Reaction to Management Earnings Forecasts. Journal of Financial Reporting, 6(1), 87–107. https://doi.org/10.2308/jfr-2020-005
  26. IDX, I. S. E. (2022). Maintaining Resilience To Overcome Challenges. In Developing Resilience : Annual Report (pp. 1–453). Indonesia Stock Exchange. https://doi.org/10.4324/9781315189178-9
  27. Islam, Md. R. Haque, Md. Z., & Moutushi, R. H. (2022). Earnings quality and financial flexibility : a moderating role of corporate governance. Cogent Business & Management, 9(1). https://doi.org/10.1080/23311975.2022.2097620
  28. Jacob, M., & Schütt, H. H. (2019a). Firm Valuation and the Uncertainty of Future Tax Avoidance. European Accounting Review, 29(3), 409–435. https://doi.org/10.1080/09638180.2019.1642775
  29. Jacob, M., & Schütt, H. H. (2019b). Firm Valuation and the Uncertainty of Future Tax Avoidance. European Accounting Review, 29(3), 409–435. https://doi.org/10.1080/09638180.2019.1642775
  30. Jiyeon Lee, Jung, S., & Cho, H. (2024). Managerial ability and tax avoidance adjustment toward the optimal level. Spanish Journal of Finance and Accounting.
  31. Kałdoński, M., & Jewartowski, T. (2020a). Do firms using real earnings management care about taxes? Evidence from a high book-tax conformity country. Finance Research Letters, 35, 101351. https://doi.org/10.1016/j.frl.2019.101351
  32. Kałdoński, M., & Jewartowski, T. (2020b). Do firms using real earnings management care about taxes? Evidence from a high book-tax conformity country. Finance Research Letters, 35, 101351. https://doi.org/10.1016/j.frl.2019.101351
  33. Kaplan, M. (1996). Decision Theory as Philosophy. Cambridge University Press.
  34. Kato, H. K., Loewenstein, U., & Tsay, W. (2002). Dividend policy, cash flow, and investment in Japan. Pacific Basin Finance Journal, 10(4), 443–473. https://doi.org/10.1016/S0927-538X(02)00068-9
  35. Kothari, S P, Leone, A. J., & Simon, William E, Wasley, C. E. (2005). Performance Matched Discretionary Accrual Measures. Journal of Accounting and Economics, October 2000, 163–197. https://www.sciencedirect.com/science/article/pii/S0165410104000849
  36. Lebert, S. (2021a). Rounding up performance measures in German firms : Earnings cosmetics or earnings management on a larger scale ? Rounding up performance measures in German firms : Earnings cosmetics or earnings management on a larger scale ? SSRN Electronic Journal, 48(September), :564–586. https://dx.doi.org/10.2139/ssrn.2882741
  37. Lebert, S. (2021b). Rounding up performance measures in German firms : Earnings cosmetics or earnings management on a larger scale ? Rounding up performance measures in German firms : Earnings cosmetics or earnings management on a larger scale ? SSRN Electronic Journal, 48(September), :564–586.
  38. Li, V. (2019). The effect of real earnings management on the persistence and informativeness of earnings. British Accounting Review, 51(4), 402–423. https://doi.org/10.1016/j.bar.2019.02.005
  39. Liu, H., & Lee, H. A. (2019). The effect of corporate social responsibility on earnings management and tax avoidance in Chinese listed companies. International Journal of Accounting and Information Management, 27(4), 632–652. https://doi.org/10.1108/IJAIM-08-2018-0095
  40. Mehrani, S., Moradi, M., & Eskandar, H. (2017). Institutional Ownership Type and Earnings Quality: Evidence from Iran. Emerging Markets Finance and Trade, 53(1), 54–73. https://doi.org/10.1080/1540496X.2016.1145114
  41. Osegbue, I. F., Nweze, A., Ifurueze, M., & Nwoye, C. M. (2018). Effects of tax sheltering on earnings management in Nigeria. Research Papers in Economics and Finance, 3(2), 45–69. https://doi.org/10.18559/ref.2018.2.5
  42. Ozili, P. K. (2016). Earnings Quality and IFRS Research in Africa: Recent Evidence, Issues and Future Direction. Research Journal of Finance and Accounting (Online), 7(16), 84–94.
  43. Pathak, R., & Ranajee. (2020). Earnings quality and corporate payout policy linkages: An Indian context. The North American Journal of Economics and Finance, 51(100855), 1–10. https://doi.org/10.1016/j.najef.2018.10.003
  44. Perotti, P., & Wagenhofer, A. (2014a). Earnings quality measures and excess returns. Journal of Business Finance and Accounting, 41(5–6), 545–571. https://doi.org/10.1111/jbfa.12071
  45. Perotti, P., & Wagenhofer, A. (2014b). Earnings quality measures and excess returns. Journal of Business Finance and Accounting, 41(5–6), 545–571. https://doi.org/10.1111/jbfa.12071
  46. Persakis, A., & Iatridis, G. E. (2017). The joint effect of investor protection, IFRS, and earnings quality on cost of capital: An international study. Journal of International Financial Markets, Institutions and Money, 46, 1–29. https://doi.org/10.1016/j.intfin.2016.10.001
  47. Ping, K. (2016). Do Investors Price Accruals Quality for Firms Charged with Poor Reporting? Pan-Pacific Journal of Business Research, 7(1), 2–23.
  48. Ramalingegowda, S., Utke, S., & Yu, Y. (2021). Common Institutional Ownership and Earnings Management*. Contemporary Accounting Research, 38(1), 208–241. https://doi.org/10.1111/1911-3846.12628
  49. Rezaee, Z., & Tuo, L. (2019). Are the Quantity and Quality of Sustainability Disclosures Associated with the Innate and Discretionary Earnings Quality? Journal of Business Ethics, 155(3). https://doi.org/10.1007/s10551-017-3546-y
  50. Savor, P., & Wilson, M. (2016). Earnings Announcements and Systematic Risk. Journal of Finance, 71(1). https://doi.org/10.1111/jofi.12361
  51. Sekaran, U., & Bougie, R. (2016). Research Methods for Business : A Skill Building Approach (2016) Wiley; 7th edition (June 27, Ed.; 7th edition). Chichester, West Sussex, United Kingdom : John Wiley & Sons, 2016.
  52. Shin, H., & Kim, S. (2019). The Effect of Corporate Governance on Earnings Quality and Market Reaction to Low Quality Earnings : Korean Evidence. https://doi.org/10.3390/su11010102
  53. Siladjaja, M., & Jasman, J. (2024). The role of earnings quality and future returns: An illustrative simulation of a rational decision model. Journal of Open Innovation: Technology, Market, and Complexity, 10(1). https://doi.org/10.1016/j.joitmc.2023.100191
  54. Sinha, P., & Kumar, A. (2024a). Do dividends signal earnings quality in the emerging markets? Large sample evidence from India. International Journal of System Assurance Engineering and Management.
  55. Sinha, P., & Kumar, A. (2024b). Do dividends signal earnings quality in the emerging markets? Large sample evidence from India. International Journal of System Assurance Engineering and Management. https://doi.org/10.1007/s13198-024-02473-x
  56. Sinha, R. K., & Damle, H. (2025). Corporate integrity, culture, and dividend policy. Journal of Behavioral and Experimental Finance, 46. https://doi.org/10.1016/j.jbef.2025.101028
  57. Taleb, G. Al. (2012). Measurement of Impact of Agency Costs on the Level of Firms on Dividend and Leverage Policy : An Empirical Study. Institute of Interdisciplinary Business Research, 3(10), 234–244.
  58. Trippi, R. R., & Lee Jae, K. (1996). Artificial Intelligence in Finance Investing : State of the Art Technologies for Securities Selection and Portfolio Management. Wayne McGraw-Hill Times Mirror Higher Education Group.
  59. Uzezi, M. (2022). Tax Planning Strategies And Earnings Management Of Listed Manufacturing Firms In Nigeria. African Journal of Business and Economic Development, 2(11), 58–71.
  60. Wilcox, S. E. (2007). The Adjusted Earnings Yield. Financial Analysts Journal, 63(5), 54–68.
  61. Yoon, S. Suk., Kim, H. Jin., & Woodruff, G. (2012). On The Models And Estimation Of Discretionary Accruals. IFAS. University of Xiamen. https://www.kaa-edu.or.kr/online3/2014_1/2. Soon Suk Yoon.pdf
  62. Zarowin, P. (2015). Estimation of Discretionary Accruals and the Detection of Earnings Management. Oxford Handbooks Online, September 2016, Pages 481–496. https://doi.org/10.1093/oxfordhb/9780199935406.013.20

Jurnal Ekonomi dan Bisnis
is published by Universitas Islam Sultan Agung, Indonesia.

Contact: Jl. Raya Kaligawe Km.4, PO BOX 1054/SM Semarang 50112, Indonesia
Phone: +62 857-2760-6666
Website: https://fe.unissula.ac.id
Email: ekobis.fe@unissula.ac.id

ISSN: 2685-4767 (Online) | 1411-2280 (Print)
DOI : 10.30659/ekobis

This work is licensed under a Creative Commons Attribution 4.0 International License

Get a feed by atom here, RRS2 here and OAI Links here

View My Stats

apps