Abstract

http://ssrn.com/abstract=884812
 
 

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Earnings Management, Corporate Tax Shelters, and Book-Tax Alignment


Dhammika Dharmapala


University of Illinois College of Law

Mihir A. Desai


Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

January 19, 2009

HBS Finance Working Paper No. 884812

Abstract:     
This paper reviews recent evidence analyzing the link between earnings management and corporate tax avoidance and considers the implications for how policymakers should evaluate the financial reporting environment facing firms. A real-world tax shelter is dissected to illustrate how tax shelter products enable managers to manipulate reported earnings. A stylized example is developed that generalizes this view of corporate tax avoidance and empirical evidence consistent with this view is discussed. This view of corporate tax avoidance implies that shareholders and policymakers should question the rationale for distinct financial reports and that greater book-tax alignment may have mutually beneficial effects for investors and tax authorities.

Number of Pages in PDF File: 24

Keywords: Earnings management, Tax avoidance, Tax shelters; Book-tax conformity

JEL Classification: G30, H25, H26, J33, M41, M43

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Date posted: February 28, 2006 ; Last revised: January 21, 2009

Suggested Citation

Dharmapala, Dhammika and Desai, Mihir A., Earnings Management, Corporate Tax Shelters, and Book-Tax Alignment (January 19, 2009). HBS Finance Working Paper No. 884812. Available at SSRN: http://ssrn.com/abstract=884812 or http://dx.doi.org/10.2139/ssrn.884812

Contact Information

Dhammika Dharmapala
University of Illinois College of Law ( email )
504 E. Pennsylvania Avenue
Champaign, IL 61820
United States
Mihir A. Desai (Contact Author)
Harvard Business School - Finance Unit ( email )
Boston, MA 02163
United States
617-495-6693 (Phone)
617-496-6592 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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