The Impact of Earnings Management and Tax Planning on the Information Content of Earnings

33 Pages Posted: 10 Nov 2007 Last revised: 30 Jul 2008

Linda H. Chen

University of Idaho

Dan S. Dhaliwal

University of Arizona - Department of Accounting

Mark A. Trombley

University of Arizona - Eller College of Management

Date Written: November 2007

Abstract

This paper examines the effect of tax planning and earnings management on the relative informativeness of book income and taxable income. We conduct two sets of tests documenting (1) the incremental effect of tax planning and earnings management on the relative informativeness of book and taxable income and (2) the relation between voluntary conformity and the relative informativeness of book and taxable income. Based on these two sets of tests, we conclude that tax planning and earnings quality jointly affect the relative informativeness of book and taxable income.

Keywords: earnings management, taxable income, book income, information content

JEL Classification: G12, G32, H24, H25, M41, M43

Suggested Citation

Chen, Linda H. and Dhaliwal, Dan S. and Trombley, Mark A., The Impact of Earnings Management and Tax Planning on the Information Content of Earnings (November 2007). Available at SSRN: https://ssrn.com/abstract=1028808 or http://dx.doi.org/10.2139/ssrn.1028808

Linda H. Chen

University of Idaho ( email )

Department of Accounting
College of Business and Economics
Moscow, ID 83944-3174
United States

Dan S. Dhaliwal

University of Arizona - Department of Accounting ( email )

McClelland Hall
PO Box 210108
Tucson, AZ 85721
United States

Mark A. Trombley (Contact Author)

University of Arizona - Eller College of Management ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
520-621-4805 (Phone)
520-621-3742 (Fax)

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