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
Language
English
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