The Impact of Taxation on the Earnings Management of New Zealand Electric Power Boards
Posted: 26 Feb 1998
New Zealand electric power boards became subject to corporate income tax for the first time from April 1 1987. Effectively this amounted to a change in their corporate tax rate from zero to 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. The latter result may be due to the garbled measure of discretionary expenses because of structural changes in that year to cater for the next taxation regime.
JEL Classification: M41
Suggested Citation: Suggested Citation