Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/213855
Authors: 
Eichfelder, Sebastian
Jacob, Martin
Kalbitz, Nadine
Wentland, Kelly
Year of Publication: 
2020
Series/Report no.: 
arqus Discussion Paper 252
Abstract: 
We quantify the degree of tax-induced earnings management associated with statutory tax rates and examine whether greater book-tax conformity alters this particular type of earnings management. We first validate a new empirical approach for examining tax-induced earnings management using European unconsolidated financial and ownership information over 2005-2013. We provide robust evidence of significant tax-induced earnings management in both domestic and multinational firms. In particular, the results suggest that a 10 percentage point increase in the corporate tax rate relates to an 8.2 percent decrease in pre-tax book income. We then document that firms in countries with greater book-tax conformity engage in additional tax-induced earnings management. This is important given that it contrasts with prior literature, which does not find an effect for book-tax conforming transactions with a change in conformity.
Subjects: 
tax-induced earnings management
book-tax conformity
conforming tax avoidance
JEL: 
H25
H26
M41
Document Type: 
Working Paper

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