Research On Corporate Tax Cost Constraints Earnings Management

As an important research field in positive accounting, earnings management has always been one of hot issues for researchers at home and abroad. But for a long time, most researches on earnings management have been foucusing on the factors in micro level such as enterprise behavior and few refers to the factors in macro level such as economy policy. Meanwhile China is a coutry which attaches great importance to macroeconomic control and therefore it must has some theoretical and actual value to research the inssue how macroeconomic polices will impact on enterprises’ earnings management behaviors. This thesis chosen tax policy which is one of macroeconomic policies closely related to enterprises to be the research object and specifically researched the inssue how the change of tax cost caused by the change of enterprise income tax policy would impact on enterprises’earnings management behaviors.First of all, the thesis redefined the concept of earnings management and analysed the characteristics and the advantages and disadvantages of earnings management from a new perspective. And on that basis, from the view of organizational behavior and using fraud triangle theory for reference, the thesis structured a theoretical framework containing such three factors as ability, motivation and opportunity for analysing earnings management. Then the thesis analysed the three factors advancedly mainly using contract theory and clarified the mechanism of the tax policy impacting on the enterprises’ earnings management behaviors. Secondly, the thesis reviewed the main literatures about earnings management at home and abroad from three aspects:corporate governance, tax policy and accounting principle. And these three research fields separately reflected the impacts on earnings management from the three factors:ability, motivation and opportunity. Also the thesis reviewed the literatures about identifying and measuring earnings management. All these reviewing works were to supply optional ideas and proper methods for the advancedly research. Thirdly, the thesis researched the inssue how the change of tax cost caused by the change of enterprise income tax policy in China in2008impacted on enterprises’ earnings management behaviors from such three aspects as magnitude, approach and frequency, using the methods such as multiple linear regression, two paired sample t test, frequence distribution method and etc, and taking listed companies in China’s A-share market as samples. Finally, the thesis summarized the research process and results, made a conclusion, and offerred proposals about making tax policy and governing earnings management.The research found that:(1) when the enterprises went into a low income tax rate period from a high income tax rate period, they would increase the magnitude of earnings management observably. And specifically, the magnitude of earnings management through taxable items increased observably but the magnitude of earnings management through non-taxable items had occurred with no significant change. Meanwhile, the number of enterprise which implemented earnings management in order to avoid loss grew observably after the income tax rate had declined.(2) When the enterprises went into a high income tax rate period from a low income tax rate period, they would decrease the magnitude of earnings management but it’s not statistically significant. And specifically, the magnitude of earnings management through taxable items decreased with no statistically significance and the magnitude of earnings management through non-taxable items increased with statistically significance. Meanwhile, the number of enterprise which implemented earnings management in order to avoid loss dropped after the income tax rate had rose but it’s not obvious.(3) When the enterprises were in a period with a relative stable income tax rate, the magnitude of earnings management didn’t change obviously. And specifically, the magnitude of earnings management through both taxable items and non-taxable items didn’t change obviously. Meanwhile the number of enterprise which implement earnings management in order to avoid loss didn’t change obviously too. In general, the research in this thesis shows that, the fall of income tax rate will stimulate most enterprises’ earnings management behaviors, the rise of income tax rate will restrain enterprises’ earnings management behaviors to some extent but it’s not obvious, and a relative stable income tax rate will not observably influence enterprises’earnings management behaviors.