A Study on the Relationship between Income Tax Rate Reduction and Real Earnings Management

• Main Authors: Min-Hsin Chen, 陳旻欣
• Other Authors: Shu-Ling Wu
• Format: Others
• Language: zh-TW
• Published: 2013
• Online Access: http://ndltd.ncl.edu.tw/handle/5myj67

碩士 === 國立臺灣大學 === 會計學研究所 === 101 === The Legislative Yuan of Republic of China passed an amendment to the Income Tax Act in May 2009, which reduced the corporate income tax rate from 25% to 20% and the amendment applied to 2010 onwards. This income tax rate reduction would provide managers with large motivations to manage earnings downward in 2009 so the enterprise can minimize the tax burden. This study investigates whether corporation management manipulates earnings downward by accelerating discretionary expenses and decreasing production costs in 2009. In addition, this study expects the degree of this real earnings management for firms with higher 2009 taxable income to be greater. This study employs Roychowdhury（2006）model to estimate the abnormal discretionary expenses and abnormal production cost as a measure of real earnings management. I find evidence consistent with managers manipulating discretionary expenditures and production cost to minimize the income tax in 2009 and a significant reversal of real earnings management measures in 2010. The degree of this real earnings manipulation is higher for companies with higher taxable income in 2009.The result provide evidence suggesting that companies conduct real activity earnings management to move earnings to future period in which the tax rate is low to alleviate tax burden.