Earnings and Balance-Sheet Properties and the Interplay of Tax Incentives and Tax Enforcement
34 Pages Posted: 26 Aug 2016
Date Written: August 25, 2016
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: Suggested Citation