IDEAS home Printed from https://ideas.repec.org/a/wsi/tijaxx/v54y2019i01ns1094406019500021.html
   My bibliography  Save this article

Earnings Management in Response to Corporate Tax Rate Reduction Under an Imputation Tax System

Author

Listed:
  • Nan-Ting Kuo

    (Nankai Business School, Nankai University, 94 Weijin Road, Tianjin 300071, P. R. China)

  • Cheng-Few Lee

    (Rutgers Business School, Rutgers University, Piscataway, New Jersey 08854-8054, USA)

Abstract

Our study explores how firms respond to a tax rate reduction under an imputation tax system. By exploring Taiwanese data, we find that firms engage in significant downward earnings management preceding a tax rate reduction, and this earnings management behavior reverses in the following year. We further explore what factors drive this finding, given that corporate tax avoidance reduces shareholder imputation credits and thus generates limited tax benefits to most shareholders. We argue and find evidence that three factors explain the tax-induced earnings management: (1) financing benefits from tax savings, (2) managerial rent extraction, and (3) the influence of foreign and domestic institutional shareholders. Our results suggest that factors other than shareholder tax benefits have significant effects on corporate tax avoidance, suggesting that firms still have strong incentives to avoid taxes under an imputation tax system.

Suggested Citation

  • Nan-Ting Kuo & Cheng-Few Lee, 2019. "Earnings Management in Response to Corporate Tax Rate Reduction Under an Imputation Tax System," The International Journal of Accounting (TIJA), World Scientific Publishing Co. Pte. Ltd., vol. 54(01), pages 1-34, March.
    • Handle: RePEc:wsi:tijaxx:v:54:y:2019:i:01:n:s1094406019500021
    DOI: 10.1142/S1094406019500021
    as

    Download full text from publisher

    File URL: https://www.worldscientific.com/doi/abs/10.1142/S1094406019500021
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1142/S1094406019500021?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:tijaxx:v:54:y:2019:i:01:n:s1094406019500021. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: https://www.worldscientific.com/worldscinet/tija .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.