Tax-induced earnings management in emerging markets: Evidence from China
Date of Original Version
China issued the New Enterprise Income Tax Law in 2007, which changed the corporate income tax rate from 33 percent to 25 percent and came into effect in 2008. Using the simulated marginal tax rate as an indicator of firms' earnings management incentives, and discretionary current accruals as a proxy for earnings management, we find significant tax-induced earnings management in 2007. However, the downward earnings management becomes less obvious for firms that have a greater percentage of shares owned by state-owned enterprises, have an audit committee on the board, and disclose certified internal control reports.
Journal of the American Taxation Association
Lin, Bingxuan, Rui Lu, and Ting Zhang. "Tax-induced earnings management in emerging markets: Evidence from China." Journal of the American Taxation Association 34, 2 (2012): 19-44. doi:10.2308/atax-10236.