The Association between Book-Tax Conformity and Earnings Management

49 Pages Posted: 11 Jan 2012 Last revised: 15 May 2014

See all articles by Bradley S. Blaylock

Bradley S. Blaylock

University of Oklahoma - Michael F. Price College of Business

Fabio B. Gaertner

University of Wisconsin - Madison - Department of Accounting and Information Systems

Terry J. Shevlin

University of California-Irvine

Date Written: September 12, 2013

Abstract

There is an on-going debate in the literature about the costs and benefits of conforming book and taxable income. Proponents argue that increased book-tax conformity will reduce aggressive financial reporting because managing earnings up increases taxes and will curtail abusive tax shelters because managing taxes down decreases earnings reported to shareholders. We use a panel of 139,536 firm-year observations across 34 countries over the period 1996-2007 to test whether high levels of book-tax conformity are associated with less earnings management and find that higher book-tax conformity is associated with significantly more, not less earnings management. We conclude that one of the primary claimed benefits of increasing book-tax conformity, more truthful financial reporting with less earnings management, is unlikely to be as large as previously thought.

Keywords: book-tax conformity, earnings management

JEL Classification: H20, H25, M41

Suggested Citation

Blaylock, Bradley S. and Gaertner, Fabio B. and Shevlin, Terry J., The Association between Book-Tax Conformity and Earnings Management (September 12, 2013). Review of Accounting Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1983107 or http://dx.doi.org/10.2139/ssrn.1983107

Bradley S. Blaylock

University of Oklahoma - Michael F. Price College of Business ( email )

307 West Brooks
Norman, OK 73019-4004
United States

Fabio B. Gaertner

University of Wisconsin - Madison - Department of Accounting and Information Systems ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States

Terry J. Shevlin (Contact Author)

University of California-Irvine ( email )

Irvine, CA California 92697-3125
United States
2065509891 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
797
Abstract Views
2,900
rank
29,344
PlumX Metrics