The Impact of Taxation on the Earnings Management of New Zealand Electric Power Boards
Posted: 3 Mar 1999
New Zealand electric power boards were licensed by the Electric Power Board Act 1925 to supply electricity in defined geographical franchise areas. These entities were exempt from income tax until 1987 when their earnings were subject to the statutory corporate tax rate of 48 percent. This paper investigates the extent to which New Zealand electric power boards manipulated their earnings in response to this regulatory change. The results are consistent with the hypothesis that managers of electric power boards increased discretionary expenses in the first taxable year. However, there is no evidence of decreased discretionary expenses in the final tax-exempt year.
JEL Classification: M41, M43, H25
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