Title

Tax-induced earnings management in emerging markets: Evidence from China

Document Type

Article

Date of Original Version

10-23-2012

Abstract

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.

Publication Title

Journal of the American Taxation Association

Volume

34

Issue

2

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