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Tax incentives and earnings management: A study based on accelerated depreciation policy in China

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  • Wang, Jiangyuan
  • Fan, Wenlin
  • Wang, Zhixiao

Abstract

This paper uses the accelerated depreciation policy for fixed assets implemented by Chinese tax authorities since 2014 to explore the relationship between tax incentives and earnings management. Results report the following: (1) The accelerated depreciation policy for fixed assets causes a significant increase in earnings management and the result persists after accounting for endogeneity problems; and (2) the accelerated depreciation policy for fixed assets has a more significant effect on firms with small pre-policy book-tax differences and low pre-policy investment growth. This paper supplements the research that tax policy affects earnings management behavior of firms.

Suggested Citation

  • Wang, Jiangyuan & Fan, Wenlin & Wang, Zhixiao, 2024. "Tax incentives and earnings management: A study based on accelerated depreciation policy in China," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 281-296.
    • Handle: RePEc:eee:ecanpo:v:81:y:2024:i:c:p:281-296
    DOI: 10.1016/j.eap.2023.11.036
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    More about this item

    Keywords

    Tax incentives; Accelerated depreciation policy for fixed asset; Earnings management; Book-tax differences; Investment growth;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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