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Effects of Accruals, Cash Flows, and Taxes on Earnings Management: Evidence from Chile and Malaysia

26 Pages Posted: 23 Sep 2008  

Sakthi Mahenthrian

Butler University

María Blanco

Universidad CEU San Pablo

David Cademartori

Pontifical Catholic University of Valparaiso

Date Written: September 23, 2008

Abstract

In January 2009, Chile will require its listed companies to adopt IFRS. Malaysia has a tradition of modifying the IFRS before adopting them. Chile's legal system is based on the French Civil Law tradition and Malaysia's legal system is based on the English common law tradition. Hence, this study investigates whether the listed firms in these two countries use deferred tax expenses to manage their earnings. It also studies the factors that affect the amount of deferred tax expenses reported. The study finds that beyond total accruals, deferred tax expenses are not incrementally useful to detect earnings management. Further, the amount recognized as deferred tax expenses is significantly associated with changes in operating cash flows, and in Chile, it is also related to the level of institutional ownership in listed firms.

JEL Classification: M41, M43, M44, M47, H25, G32

Suggested Citation

Mahenthrian, Sakthi and Blanco, María and Cademartori, David, Effects of Accruals, Cash Flows, and Taxes on Earnings Management: Evidence from Chile and Malaysia (September 23, 2008). Available at SSRN: https://ssrn.com/abstract=1272435 or http://dx.doi.org/10.2139/ssrn.1272435

Sakthi Mahenthrian (Contact Author)

Butler University ( email )

4600 Sunset Avenue
Indianapolis, IN 46208
United States

María Blanco

Universidad CEU San Pablo ( email )

Calle Julián Romea, 18
Madrid, Madrid 28003
Spain

HOME PAGE: http://www.uspceu.com/es/home.php

David Cademartori

Pontifical Catholic University of Valparaiso ( email )

Escuela de Comercio - UCV
Valpariso, Valparaiso 2362736
Chile

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