The Empirical Study On The Transfer Pricing And Earnings Management In Taiwan Listed Firms

In recent years, the trends of globalization and the growing body of international economic activities push up the industries going global. Consequently, leading the multinational business generally utilize transfer pricing among their related party for avoiding the tax paid or managing earnings. This dissertation argues that Taiwan corporations might manage their earnings due to the implementation of the Act of Regulations Governing Assessment of Profit-Seeking Enterprise Income Tax on Non-Arm's Length Transfer Pricing in Taiwan. Therefore, this dissertation focuses on the impact of transfer pricing on the earning management and discusses whether the transfer pricing is one of the means in earnings management.This study collects the firms that had ever listed in Taiwan Stock Exchange from 2002 to 2006. Samples from finance, insurance, and security industries are excluded, as well as the samples with missing data. Finally,597 firms from 27 industries are obtained in form of panel data. Based on the panel regression model, I construct simultaneous regression models for investigating the interaction between the earnings management and the transfer pricing.The first issue of this paper is to find out the factors what affects transfer pricing strategy among Taiwan listed firms. The empirical results show that the firm with higher profit ability and leverage level tend to keep profit at subsidiary who set up at tax-haven by transfer pricing. The second issue of this research is to detect whether the transfer pricing is one of the means in earnings management. The empirical results exhibit the discretionary accruals of earnings management is affected by transfer pricing. This results imply transfer pricing is a mean of earnings management.According to empirical results, this paper addresses four suggestions. First, tax authority should take notice of the firms with higher leverage ratio for a long run. Second, security authority have to review the applicability of the regulation that separate parent and subsidiary company's financial statement for a main statement in Taiwan, and strengthen the information disclosure among related parities base on information transparency. Third, when corporations face any problems during driving corporate governance should discover the long-term solution projects from frame side. Forth, sthength the ethics of accounting practitioners.