A Research On Tax Collusion And Earnings Management

In 1980s, tax-agency service begins to appear in our country step by step. in early 1990s, country promulgated relevant laws and regulations make the tax agent activities realize legalization and standardization. However, with the rapid development of the market's economy, there are many issues in tax agency system which deserve our attention.This paper base on the Principal-Agent Relationship (tax agency institutions & taxpayer) in tax agency industry, uses theoretical and empirical analysis methods to study tax collusion. Game theory was used to build model to analysis the Principal-Agent Relationship (tax agency institutions & taxpayer) in tax agency industry and tax collusion. Referring to foreign-related empirical research methods, from the empirical perspective to research whether tax collusion relationship exist between the tax agency institutions & taxpayer.This theoretical study found that between the tax agency and the taxpayer is a principal-agent relationship. As a "rational man" of Market Economy, the tax agency and the taxpayer have real motivation to maximize their own interests, will not take into account the national interest. In addition, if the tax authorities' monitoring cost is very high, inspection will be reduced, then the risk of collusion between the tax agency and the taxpayer will drop, the possibility of collusion will increase. If the behavior between the tax agency and the taxpayer can not be completely observed by the tax authorities, Rent-Seeking will be happen.The empirical analysis of this paper, study the principal-agent problem between the tax agency and taxpayer, inspection if there is collusion between the tax agency and taxpayer. Empirical study found that, the enterprise that retain international "Big Four" (tax agency) have lower average effective tax rate than those without the tax agency. Note the auditors in "Big Four" may help their customers carry on reducing income tax behavior for earnings management. Which shows the tax agency may help taxpayers entering into tax avoidance. Empirical research also found that, when the effective tax rate is less than & equal to the statutory tax rate, "Big Four" have significant negative correlation with income tax Earnings Management level of enterprise, illustrates services provided by accountants in "Big Four" is indeed effective on the corporate income tax earnings management.