Abstract

http://ssrn.com/abstract=1679190
 
 

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Can Book-Tax Differences Capture Earnings Management and Tax Management? Empirical Evidence from China


Tanya Y. H. Tang


The University of British Columbia - Faculty of Management

Michael Firth


Zhongshan University - Department of Accounting and Finance

September 18, 2010

The International Journal of Accounting, Forthcoming

Abstract:     
This study investigates whether and how book-tax differences (BTDs) are related to earnings management, tax management, and their interactions in Chinese listed companies. Using unique tax-effect BTDs obtained from Chinese B-share listed firms, we find that firms with strong incentives for earnings and tax management exhibit high levels of abnormal BTDs. This suggests that BTDs can be used to capture both accounting and tax manipulations induced by managerial motivations. Our results indicate that earnings management explains 7.4% of abnormal BTDs, tax management accounts for 27.8% of abnormal BTDs, and their interaction explains 3.2% of abnormal BTDs. Tax-effect BTDs are more powerful than income-effect BTDs in capturing opportunistic reporting at both conceptual and empirical levels.

Number of Pages in PDF File: 49

Keywords: Book-Tax Differences, Earnings Management, Tax Management, China

JEL Classification: M41, H29

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Date posted: September 19, 2010 ; Last revised: May 30, 2011

Suggested Citation

Tang, Tanya Y. H. and Firth, Michael, Can Book-Tax Differences Capture Earnings Management and Tax Management? Empirical Evidence from China (September 18, 2010). The International Journal of Accounting, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1679190

Contact Information

Tanya Y. H. Tang (Contact Author)
The University of British Columbia - Faculty of Management ( email )
3333 University way
Kelowna, BC V1V1V7
Canada
Michael Firth
Zhongshan University - Department of Accounting and Finance ( email )
Castle Peak Road
Tuen Mun, New Territories
Hong Kong
China
+852 2616 8160 (Phone)
+852 2466 4751 (Fax)
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