Are Taxes a Determinant Factor in Earnings Management Behavior?

Unequal tax rules between economic sectors can stimulate the practice of earnings management. Our purpose is therefore to determine whether the enforcement of these laws have created incentives for earnings management in Brazil. To test the hypothesis, we selected a sample-data composed by Brazilian insurance companies, since this sector suffered a considerable increase in the income-taxes rate in 2008, moving the global rate from 34% to 40%. The utilization of this group was motivated because according to Brazilian tax regulatory system, technical accruals from insurance companies are considers deductible from income taxes. The results showed a significant relationship between the increased tax rates and the measure of the technical accruals, showing evidence of earnings management behavior in this industry specifically in the period in which the tax-rate was increased for this group of companies.

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Income Taxes, Compensating Differentials, and Occupational Choice: How Taxes Distort the Wage-Amenity Decision

American Economic Journal Economic Policy ◽

10.1257/pol.4.1.224 ◽

2012 ◽

Vol 4 (1) ◽

pp. 224-247 ◽

Cited By ~ 13

Author(s):

David Powell ◽

Hui Shan

Keyword(s):

Occupational Choice ◽

Income Taxes ◽

Compensating Differentials ◽

Tax Rates ◽

Occupational Choices ◽

Tax Rate ◽

Welfare Impacts ◽

Percent Increase

The link between taxes and occupational choices is central for understanding the welfare impacts of income taxes. Just as taxes distort the labor-leisure decision, they may also distort the wage-amenity decision. Yet, there have been few studies on the full response along this margin. When tax rates increase, workers favor jobs with lower wages and more amenities. We introduce a two-step methodology which uses compensating differentials to characterize the tax elasticity of occupational choice. We estimate a significant compensated elasticity of 0.03, implying that a 10 percent increase in the net-of-tax rate causes workers to change to a 0.3 percent higher wage job. (JEL H24, H31, J22, J24, J31)

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Earnings Management, Effective Tax Rate (ETR) and Book-Tax Gap (BTG)

GATR Journal of Accounting and Finance Review (AFR) Vol. 4 (4) Oct-Dec 2019 - GATR Accounting and Finance Review ◽

10.35609/afr.2018.3.1(5) ◽

2018 ◽

Vol 3 (1) ◽

pp. 33-43

Author(s):

Jasrial Jasrial ◽

Susy Puspitasari ◽

Ali Muktiyanto

Keyword(s):

Earnings Management ◽

Behavior Management ◽

Banking Sector ◽

Capital Intensity ◽

Jel Classification ◽

Tax Rates ◽

Effective Tax Rate ◽

Effective Tax Rates ◽

Tax Rate ◽

Tax Gap

Objective - This research examines the effect of company size, changes in out-cash flow, return on assets, conservatism, and profit levelling on earnings management. Methodology/Technique - The results of this research show that banking capital structure, capital intensity, intensity of inventory, and intensity of R & D have a significant impact on effective tax rates. Further, the results also show that, with respect to the non-banking sector, R & D expenditure contributes significantly to effective tax rates. Simultaneously, earnings management and effective tax rates, as well as other factors, also have an effect on book tax gap. Findings - This study shows that profit management has a significantly positive effect on book tax gap, and effective tax rates has a significant negative effects o book tax gap. In terms of the non-banking sector, earnings management and effective tax rate have no effect on book tax gap. Deferred tax expenses have a lower capability to detect earnings management than accrual, in both the banking and non-banking sector. Novelty - The study of management capabilities optimizes the role of book tax gap and effective tax rate for earning management. Both tax management and earnings management are closely related to behavior management in managing a company based on the agency theory. Furthermore, the study identifies a relationship between earnings management and book tax gap. Type of Paper: Empirical Keywords: Book Tax Gap; Effective Tax Rate; Earnings Management; Accrual Total; Indonesia. JEL Classification: H26, H29.

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Effects of Unitary vs. Nonunitary State Income Taxes on Interstate Resource Allocation: Some Analytical and Simulation Results

Journal of the American Taxation Association ◽

10.2308/jata.2001.23.1.39 ◽

2001 ◽

Vol 23 (1) ◽

pp. 39-60 ◽

Cited By ~ 5

Author(s):

Michael G. Williams ◽

Charles W. Swenson ◽

Terry L. Lease

Keyword(s):

State Government ◽

Income Taxes ◽

Tax Credits ◽

Tax Revenue ◽

Tax Rates ◽

Tax Rate ◽

Unitary State ◽

State Tax ◽

State Income ◽

Tax Structures

This study examines the optimal location choice decisions of a two-state firm in response to changing state corporate income tax rates and tax structures. Because the firm can engineer its tax liability by manipulating between-state location of sales, property, and payroll, changes in relative state tax rates should result in the firm making such location changes. Results of a model firm simulation, examining various combinations of state tax rates and unitary vs. nonunitary tax structures, found that the firm would make interstate resource changes to minimize company-wide state income taxes. Important findings of the study are that tax rate changes in nonunitary states may cause little or no change in resources used in that state. Indeed, in one scenario, the resulting resource flows from a tax increase are favorable to the nonunitary state, making a tax increase a win-win situation for the state government (higher tax revenue and more economic activity). In contrast, changes in unitary state tax rates can result in significant resource changes in both the unitary state and in other states. The finding that tax rate cuts are ineffective in nonunitary states implies that these states may be more successful in attracting investment by changes affecting apportionment factors (tax credits for new capital, or new jobs) or by use of nontax incentives.

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Bias in Quarterly Estimates of Annual Effective Tax Rates and Earnings Management

Journal of the American Taxation Association ◽

10.2308/atax-10152 ◽

2012 ◽

Vol 34 (1) ◽

pp. 31-53 ◽

Cited By ~ 30

Author(s):

Joseph Comprix ◽

Lillian F. Mills ◽

Andrew P. Schmidt

Keyword(s):

Earnings Management ◽

Earnings Forecast ◽

Tax Rates ◽

Effective Tax Rate ◽

Effective Tax Rates ◽

Tax Rate ◽

Sarbanes Oxley ◽

Jel Classifications

ABSTRACT We investigate whether quarterly annual effective tax rate (ETR) estimates are systematically biased in comparison to year-end actual ETRs. We find that estimated annual ETRs in the first, second, and third quarters are systematically higher than year-end ETRs. We then investigate whether firms' overstatement of quarterly ETRs creates slack that is used for earnings management. We find that quarterly ETR increases are more likely to be reversed in subsequent quarters when firms would have missed their analysts' earnings forecast absent the reversal. Finally, we show that in the years subsequent to the passage of the Sarbanes-Oxley Act (SOX), changes in the ETR continue to be associated with earnings management. These results, documenting patterns of annual ETR estimates and revisions, contribute to research about how earnings management is accomplished. JEL Classifications: H25; M41.

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Deferred tax and earnings management under MASB 25

Social and Management Research Journal ◽

10.24191/smrj.v8i2.5203 ◽

2011 ◽

Vol 8 (2) ◽

pp. 57

Author(s):

Noor Hasimah M. Yacob ◽

Nor'azam Mastuki ◽

Rohaya Md Noor

Keyword(s):

Earnings Management ◽

Financial Reporting ◽

Financial Statements ◽

Discretionary Accruals ◽

Income Taxes ◽

Management Behavior ◽

Reporting Standard ◽

Accounting Standard ◽

Deferred Tax ◽

Accounting For Income Taxes

This paper investigates whether Malaysian publicly listed companies in 10 sectors use deferred tax and discretionary accruals as tools to manage earnings in order to meet earning targets: 1) to avoid an earning decline and 2) to avoid a loss. This research examines financial statements prepared during the period 2003 to 2005 when the Malaysian Accounting Standard Board (MASB) 25 Accounting for Income Taxes was in place. This study uses Burgstahler and Dichev's approach to identify earnings management firms. Healy's model and a modified Jones model are also employed to identify and separate accruals. The results show no evidence that deferred tax has been used by firms as a tool to manage earnings during the period of study. The finding suggests that the implementation of the MASB 25 (now known as Financial Reporting Standard (FRS) 112), which is more comprehensive and specific than lAS 12, has reduced the use of deferred tax by firms in managing their earnings. In contrast, the findings of this study provide evidence that firms use discretionary accruals to avoid reporting losses. The results ofthis study may be of use to researchers studying earnings management behavior and for standard setters with regard to establishing and monitoring standards.

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PERILAKU EARNINGS MANAGEMENT DI SEKITAR PERUBAHAN TARIF PAJAK TAHUN 2008

Jurnal Akuntansi ◽

10.24964/ja.v1i1.7 ◽

2016 ◽

Vol 1 (1) ◽

Author(s):

Suyanto Suyanto

Keyword(s):

Earnings Management ◽

Income Tax ◽

Stock Exchange ◽

Discretionary Accruals ◽

Earning Management ◽

Fiscal Year ◽

Tax Rates ◽

Tax Rate ◽

Before And After ◽

Tax Changes

This study aims to test the level of earning management before and after the income tax rate reduction for 2008 fiscal year. The samples were 21 banking companies listed in Indonesia Stock Exchange, which has provides loans to SMEs. The analysis using paired samplest-test to test these differences of earning management before and after the income tax rates changes. The results showed that earning management in the high tax rate was higher than in the lower tax rate. This shows that management has responded the income tax rates changes to take the opportunity. Keywords: discretionary accruals, earnings management, corporate income tax changes.

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The Economic Consequences Of Repealing The Estate Tax Law

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v1i1.2955 ◽

2011 ◽

Vol 1 (1) ◽

Author(s):

Raj Kiani ◽

Dwight Call ◽

M.A. Sangeladji

Keyword(s):

Income Taxes ◽

Economic Consequences ◽

Tax Rates ◽

Font Size ◽

Estate Tax ◽

Charitable Contributions ◽

Tax Rate ◽

Distribution Of Wealth ◽

Class Level ◽

The Individual

The federal estate tax has been a part of our tax structure since the founding of the country. It is the federal government’s only tax on accumulated transfers of wealth. From its inception in 1916, it has been applied only to very large estates. The transfer of wealth can take place during the individual’s life (gift) or at the time of death (estate).  Both types of transfer are combined and taxed according to the Taxpayer Relief Act of 1976. The Taxpayer Relief Act of 1976 was an important legislation affecting the structure of both the federal estate and gift taxes. In this Act, a unified system of taxation was established which treats both transfers of wealth, either during the life of the owner (gift) or at his or her death (estate) uniformly. The recent legislation of 2001 made drastic changes to the tax rates and the level of exemptions of the 1976 federal estate tax. According to this legislation, the maximum estate tax rate will drop gradually during the period of 2002-2010. Beginning in 2002, the maximum unified tax rate is reduced from 55% to 50%. This drop will reach to 45% by the year 2007 and will remain unchanged till 2009. The limit of exemption for a taxable transfer of wealth will increase from $1,000,000 to $1,500,000 by the year 2004, to $2,000,000 by 2006, to $3,500,000 by 2009, and to infinity by 2010 (estate tax will be repealed).  This original version of federal estate tax will come back in 2011, unless the Congress decides differently and changes the law. Like other social, economic, and tax issues, the transfer of wealth tax (estate and gift) is subject to debate and disagreements. The opponents of the estate tax support their views by referring to the immorality aspect of the tax and its undesired economic consequences. The supporters of the estate tax present their arguments on the basis of fairness and the ability of the tax to encourage charitable contributions. In addition, they believe that the economic consequences of repealing the estate tax would ripple through our economy and reduce federal revenues. Consequently, it could bring inequity and unfair distribution of wealth among the citizens and eventually could culminate in high difference in the class level of citizens. In our view, the federal estate tax is a tax worth fighting to keep and attempting to improve. If it were repealed, the burden of taxes would be felt more by those who have no wealth and had paid their income taxes on their earned income once before. Consequently, the lawmakers should keep the federal estate tax and fixing it by adjusting the amount of exemptions and the tax rates to reasonable, effective, and fair levels.

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Estimating Dynamic Income Responses to Tax Reform

The B E Journal of Economic Analysis & Policy ◽

10.2202/1935-1682.2891 ◽

2011 ◽

Vol 11 (1) ◽

Cited By ~ 9

Author(s):

Bertil Holmlund ◽

Martin Söderström

Keyword(s):

Tax Reform ◽

Income Taxes ◽

Tax Rates ◽

Marginal Tax Rate ◽

Tax Rate ◽

Long Run ◽

Large Panel ◽

Short Run ◽

Tax Changes ◽

Tax Payers

Abstract We study income responses to income tax changes by using a large panel of Swedish tax payers over the period 1991–2002. Changes in statutory tax rates as well as changes in tax bracket thresholds provide exogenous variations in tax rates that can be used to identify income responses. We estimate dynamic income models which allow us to distinguish between short-run and long-run effects in a straightforward fashion. For men, the estimates of the long-run elasticity of income with respect to the net-of-tax rate hover in a range between 0.10 and 0.30. The estimates for women are statistically insignificant. We simulate the fiscal consequences of a tax reform that reduces the top marginal tax rate by five percentage points. Such a reform may have negligible effects on tax revenues when the interactions between income taxes and other taxes are taken into account.

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Tax Rates and Tax Collections: The Basic Analytics of Khaldun-Laffer Curves

Public Finance Quarterly ◽

10.1177/109114218100900403 ◽

1981 ◽

Vol 9 (4) ◽

pp. 415-430 ◽

Cited By ~ 2

Author(s):

Roy D. Adams

Keyword(s):

Theoretical Analysis ◽

Supply And Demand ◽

Income Taxes ◽

Rate Change ◽

Tax Rates ◽

Tax Rate ◽

Demand Functions ◽

Different Types ◽

The Subject ◽

Empirical Issue

This article describes the relation between tax rates and tax collections for three different types of taxes: unit excises, ad valorem excises, and general income taxes. The tax rate-tax collections relationship is currently the subject of widespread discussion, but the determinants of the shape of the function have not been clearly specified. This article presents mathematical and graphical expositions of the linkage between supply and demand for taxed commodities and the tax rate-tax collections relationship. The tax collections function will often, but not always, be shaped as it is commonly drawn; its shape is uniquely determined by the underlying supply and demand functions in the taxed market. Whether a tax rate change will increase or reduce tax collections is always an empirical issue which depends on the values of items identified by the theoretical analysis in this article.

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Anticipated Reductions in Tax Rates and Earning Management of Listed Companies: Evidence from China

Discrete Dynamics in Nature and Society ◽

10.1155/2021/4259484 ◽

2021 ◽

Vol 2021 ◽

pp. 1-6

Author(s):

Mo Bai ◽

Dandan Song ◽

Helin Li

Keyword(s):

Earnings Management ◽

Listed Companies ◽

Earning Management ◽

Chinese Stock Market ◽

Tax Rates ◽

Tax Rate ◽

Tax Reduction ◽

Net Profit ◽

Rate Period ◽

Different Types

The effects of tax rate changes on corporations’ earning management are not fully understood. As a transitional economy, China has listed companies with different ownership and special regulatory rules. We explore under the expectation of tax reduction whether there are differences in the way and degree of earnings management implemented by different types of companies. Our study shows that firms under the anticipation of tax reduction make use of earning management, including delaying sales, taking unusual income-decreasing discretionary accruals, and so on, which leads to lower income in higher tax rate period. We find that private enterprises have more attention to reduce earning in the higher tax rate period than state-owned enterprises (SOEs), indicating that the ownership has effect on the extent of earning management. Moreover, under the specific regulations in Chinese stock market, we find that for those listed companies with negative net profit in the previous year, the priority is how to reverse losses rather than tax saving.

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