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Can tax enforcement affect misstatements? From the perspective of tax account and non-tax account misstatements

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  • Bin Li
  • Chen Ma

Abstract

This study examines the relationship between tax enforcement and accounting misstatements in China and investigates whether the effect of tax enforcement on tax account misstatement (TAM) and non-tax account misstatement (NTAM) differs. We find evidence that stricter tax enforcement by tax authorities reduces the incidence of accounting misstatements and, more importantly, this effect is the same for TAM and NTAM. However, we find that as tax enforcement increases, firms are less (more) likely to misstate tax accounts for income-increasing (income-decreasing) misstatements than non-tax accounts. Overall, our evidence is consistent with tax authorities disciplining earnings management, and more importantly, the disciplining occurs in both the tax and non-tax related accounts.

Suggested Citation

  • Bin Li & Chen Ma, 2021. "Can tax enforcement affect misstatements? From the perspective of tax account and non-tax account misstatements," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 28(3), pages 357-374, May.
    • Handle: RePEc:taf:raaexx:v:28:y:2021:i:3:p:357-374
    DOI: 10.1080/16081625.2019.1618718
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    Cited by:

    1. Guan Ping Zhu & He Fa Gui & Tao Peng & Chong Hui Jiang, 2023. "Corporate tax avoidance and corporate financialization: The moderating effect of managerial myopia," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 459-472, January.

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