The Impact Of Earnings Management On The Income Tax Cost

As an accounting choice behavior from enterprise perspective, earnings management is closely related to taxes. However, for a long time, researches on the relationship between earnings management and income tax are mostly from the perspective of theoretical analysis, evidences from empirical study are not much. When manage earnings, enterprises are frequently faced with weighing the costs of financial statement and the costs of tax. In order to get rid of this dilemma, enterprises have an incentive to avoid income tax costs through book-tax difference. From this perspective, this study investigates the impact of earnings management on the income tax cost, including total earnings management and different forms of earnings management.Firstly, drawing fraud triangle theory, this study builds a generating mechanism of lax reduction behavior by motivation, opportunity and ability. Through the analysis to the impact of earnings management on the income tax cost, this study combs the space of tax reduction from the temporary differences and the permanent differences in detail. On this basis, this study has a regression analysis for2008-2012listed companies in china through unbalances panel model.The results of empirical study reported that:(1) The effective tax burden of China’s listed companies is significantly lower than the nominal tax burden, after excluding tax rate factors, we found that the permanent differences reduced the actual tax burden stably, while the temporary differences may cause the effective tax burden volatility.(2)Listed companies exist a motivation of tax reduction through book-tax difference, the degree of earnings management is negatively correlated to effective tax rate.(3)From the point of specific ways, listed companies showed a preference on the accumulated depreciation and investment interests. During2008-2012, listed companies increased the accounting interests through delaying depreciation, and made direct benefits through tax-free investment interests.(4)A variety of evidence shows that, listed companies may still manipulate the space of impairment of assets in order to smooth the profits.Based on the conclusions, this study suggests some policy proposals about the coordination of book-tax difference and the suppression of earnings management.