Earnings Management When Incentives Compete: The Role of Tax Accounting in Russia

41 Pages Posted: 26 Nov 2004

See all articles by Igor Goncharov

Igor Goncharov

Lancaster University - Department of Accounting and Finance

Jochen Zimmermann

University of Bremen - Faculty of Business Studies and Economics; University of Bremen - Chair of Accounting and Control

Date Written: January 2005

Abstract

We test the earnings management behavior of Russian companies in the years 2001 and 2002. We analyze the effects of ownership structure on the extent of tax management. We first hypothesize that Russian firms manage earnings downwards to reduce income taxes. We test for irregularities in the distribution of earnings in the sub-samples of the companies with relatively high and low marginal tax rates in 2001 and 2002, distinguishing between low incentives versus high incentives for tax management. Conducting univariate and multivariate tests we find evidence consistent with our hypothesis. We secondly hypothesize that incentives to provide high quality financial information constrain tax management. Consistently we find that public companies manage taxes to a lesser extent than private companies. We thirdly test whether the interaction between market forces, political forces and the changing tax law from 2001 to 2002 caused a change in the reporting practices. We find evidence consistent with public firms being less engaged in tax management in 2002.

Keywords: Earnings management, reporting incentives, income taxes, transition economies

JEL Classification: G32, H26, M41, M43, M47, P27

Suggested Citation

Goncharov, Igor and Zimmermann, Jochen, Earnings Management When Incentives Compete: The Role of Tax Accounting in Russia (January 2005). Available at SSRN: https://ssrn.com/abstract=622640 or http://dx.doi.org/10.2139/ssrn.622640

Igor Goncharov (Contact Author)

Lancaster University - Department of Accounting and Finance ( email )

The Management School
Lancaster LA1 4YX
United Kingdom

Jochen Zimmermann

University of Bremen - Faculty of Business Studies and Economics ( email )

Hochschulring 4
Germany
+49 421 218 9121 (Phone)

University of Bremen - Chair of Accounting and Control ( email )

Universitaetsallee GW I
Bremen, D-28334
Germany
+49 421 218-9119 (Phone)

HOME PAGE: http://www.controlling.uni-bremen.de

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