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A Unifying Model of How the Tax System and Generally Accepted Accounting Principles Affect Corporate Behavior

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  • Douglas A. Shackelford
  • Joel Slemrod
  • James M. Sallee

Abstract

This paper models the impact of the tax system and GAAP on the real and financial reporting decisions of corporations. It provides a first step toward joint evaluation of taxation and financial reporting in the standard economic analyses of corporate behavior. The key finding is that value arises from real decisions that provide firms with discretion in their tax and financial reporting. This desire for flexibility modifies the optimal decisions of firms, in theory, and we provide examples that illustrate this behavior in the real world.

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File URL: http://www.nber.org/papers/w12873.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12873.

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Date of creation: Jan 2007
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Handle: RePEc:nbr:nberwo:12873

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  1. Graham, John R. & Harvey, Campbell R. & Rajgopal, Shiva, 2005. "The economic implications of corporate financial reporting," Journal of Accounting and Economics, Elsevier, vol. 40(1-3), pages 3-73, December.
  2. Hassett, Kevin A. & Hubbard, R. Glenn, 2002. "Tax policy and business investment," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 20, pages 1293-1343 Elsevier.
  3. Joel Slemrod, 1998. "A General Model of the Behavioral Response to Taxation," NBER Working Papers 6582, National Bureau of Economic Research, Inc.
  4. Michelle Hanlon & Terry Shevlin, 2005. "Book-Tax Conformity for Corporate Income: An Introduction to the Issues," NBER Chapters, in: Tax Policy and the Economy, Volume 19, pages 101-134 National Bureau of Economic Research, Inc.
  5. Shackelford, Douglas A. & Shevlin, Terry, 2001. "Empirical tax research in accounting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 321-387, September.
  6. Crocker, Keith J. & Slemrod, Joel, 2005. "Corporate tax evasion with agency costs," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1593-1610, September.
  7. Barth, Mary E. & Beaver, William H. & Landsman, Wayne R., 1998. "Relative valuation roles of equity book value and net income as a function of financial health," Journal of Accounting and Economics, Elsevier, vol. 25(1), pages 1-34, February.
  8. Jeffery Abarbanell & Reuven Lehavy, 2003. "Can Stock Recommendations Predict Earnings Management and Analysts' Earnings Forecast Errors?," Journal of Accounting Research, Wiley Blackwell, vol. 41(1), pages 1-31, 03.
  9. Kothari, S. P., 2001. "Capital markets research in accounting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 105-231, September.
  10. Lys, Thomas & Vincent, Linda, 1995. "An analysis of value destruction in AT&T's acquisition of NCR," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 353-378.
  11. Healy, Paul M., 1985. "The effect of bonus schemes on accounting decisions," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 85-107, April.
  12. Don Fullerton, 1983. "Which Effective Tax Rate?," NBER Working Papers 1123, National Bureau of Economic Research, Inc.
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Cited by:
  1. Laszlo Goerke, 2008. "Tax Overpayments, Tax Evasion, and Book-Tax Differences," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(4), pages 643-671, 08.
  2. Taylor, Grantley & Richardson, Grant, 2012. "International Corporate Tax Avoidance Practices: Evidence from Australian Firms," The International Journal of Accounting, Elsevier, vol. 47(4), pages 469-496.

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