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Earnings manipulation: cost of capital versus tax

  • Aasmund Eilifsen
  • Kjell Henry Knivsfla
  • Frode Saettem

We show that if taxable income were linked to accounting income, there will exist an automatic safeguard against manipulation of earnings within the analysed framework. Separating taxable income from accounting income will remove this self-controlled mechanism, and accordingly create a need for separate countermeasures to prevent earnings manipulation.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/096381899335899
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Article provided by Taylor & Francis Journals in its journal European Accounting Review.

Volume (Year): 8 (1999)
Issue (Month): 3 ()
Pages: 481-491

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Handle: RePEc:taf:euract:v:8:y:1999:i:3:p:481-491
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  1. Grinblatt, Mark & Hwang, Chuan Yang, 1989. " Signalling and the Pricing of New Issues," Journal of Finance, American Finance Association, vol. 44(2), pages 393-420, June.
  2. Scholes, Myron S & Wilson, G Peter & Wolfson, Mark A, 1990. "Tax Planning, Regulatory Capital Planning, and Financial Reporting Strategy for Commercial Banks," Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 625-50.
  3. Chaney, Paul K. & Lewis, Craig M., 1995. "Earnings management and firm valuation under asymmetric information," Journal of Corporate Finance, Elsevier, vol. 1(3-4), pages 319-345, April.
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