The Tradeoffs between Tax Savings and Financial Reporting Costs: Public versus Private Firms in China

35 Pages Posted: 18 Jul 2012  

Kenny Lin

Lingnan University

Lillian F. Mills

University of Texas at Austin - McCombs School of Business

Fang Zhang

affiliation not provided to SSRN

Date Written: February 18, 2012

Abstract

This study examines how public and private firms responded to the 2008 tax rate reduction in China from 33 percent to 25 percent. We find that private firms report significantly more income-decreasing accruals than public firms in 2007, prior to the tax rate reduction. These negative accruals are substantial and material both compared to public firms and compared to 2008. Private firms appeared to shift RMB 8 million in the aggregate, or 22 percent of total income. The results provide the first economy-wide estimates of the extent to which private firms respond materially to rate changes with inter-temporal income-shifting.

Suggested Citation

Lin, Kenny and Mills, Lillian F. and Zhang, Fang, The Tradeoffs between Tax Savings and Financial Reporting Costs: Public versus Private Firms in China (February 18, 2012). 2012 AAA Annual Meeting - Tax Concurrent Sessions. Available at SSRN: https://ssrn.com/abstract=2112359 or http://dx.doi.org/10.2139/ssrn.2112359

Kenny Lin (Contact Author)

Lingnan University ( email )

Hong Kong
China

Lillian F. Mills

University of Texas at Austin - McCombs School of Business ( email )

Austin, TX 78712
United States

Fang Zhang

affiliation not provided to SSRN ( email )

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