Earnings and Balance-Sheet Properties and the Interplay of Tax Incentives and Tax Enforcement

34 Pages Posted: 26 Aug 2016

See all articles by Thomas R. Loy

Thomas R. Loy

University of Bayreuth - Business Administration

Date Written: August 25, 2016

Abstract

This paper analyzes the joint association of tax incentives and tax law enforcement strictness on earnings and balance sheet properties of private firms. It answers a call for additional research on why "there is (...) substantial within-country variation in managers' incentives to [manage] earnings" (LaFond et al. (2007), p. 14). There is some evidence that something as homogeneous as tax law seems to be enacted differently within a country's legal framework. The key results are that stricter enforcement seemingly impairs managers' ability or willingness to engage in income-decreasing accrual earnings management. On the downside, managers instead seem to resort to real earnings management choices which are associated with potentially negative long-term real business impact.

Keywords: Financial reporting, Tax incentives, tax enforcement

JEL Classification: M41, M48

Suggested Citation

Loy, Thomas R., Earnings and Balance-Sheet Properties and the Interplay of Tax Incentives and Tax Enforcement (August 25, 2016). Available at SSRN: https://ssrn.com/abstract=2829348 or http://dx.doi.org/10.2139/ssrn.2829348

Thomas R. Loy (Contact Author)

University of Bayreuth - Business Administration ( email )

Universitätsstr. 30
Bayreuth, 95447
Germany

HOME PAGE: http://www.wp.uni-bayreuth.de

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