Title

Can book-tax differences capture earnings management and tax management? Empirical evidence from China

Document Type

Journal article

Source Publication

The International Journal of Accounting

Publication Date

6-1-2011

Volume

46

Issue

2

First Page

175

Last Page

204

Keywords

Book-tax differences, China, Earnings management, Tax management

Abstract

This study investigates the relationship between book-tax differences (BTDs) and earnings management, tax management, and their interactions in Chinese-listed companies. Using unique tax-effect BTDs obtained from Chinese B-share-listed firms, we find that firms with strong incentives for earnings and tax management exhibit high levels of abnormal BTDs. This suggests that BTDs can be used to capture both accounting and tax manipulations induced by managerial motivations. Our results indicate that earnings management explains 7.4% of abnormal BTDs, tax management accounts for 27.8% of abnormal BTDs, and their interaction explains 3.2% of abnormal BTDs. Tax-effect BTDs are more powerful than income-effect BTDs in capturing opportunistic reporting at both conceptual and empirical levels.

DOI

10.1016/j.intacc.2011.04.005

Print ISSN

10944060

E-ISSN

22133933

Publisher Statement

Copyright © 2011 University of Illinois

Access to external full text or publisher's version may require subscription.

Full-text Version

Publisher’s Version

Recommended Citation

Tang, T., & Firth, M. (2011). Can book-tax differences capture earnings management and tax management? Empirical evidence from China. International Journal of Accounting, 46(2), 175-204. doi: 10.1016/j.intacc.2011.04.005