Capital Market Maturity,Earning Management And Book-Tax Difference

The current tax accounting modes can mainly be divided into three types.The Mainland and Taiwan employ the coordination of finance and tax mode,which separates the finance and tax in an appropriate way.This tax accounting mode has an important problems,which is the Book-Tax Difference.The inbound and outbound studies show that in countries whether employing the separation of finance and tax mode or coordination of finance and tax mode,their book-Tax Difference will exist and tend to be greater and greater.Further studies present that there are three causes of the Booktax Difference.Firstly,the difference between accounting standards and finance regulations.Secondly,the inappropriate earnings management.Thirdly,attempts of tax avoidance.While,the Book-Tax Difference brought by the first is thought to be institutional Book-Tax Differences and the latter two are called management Book-Tax Difference.The institutional difference can never be avoided,but the management difference,accounting for nearly 50%of the all,results from human beings.Studies show that Book-Tax Difference will affect the earning quality of enterprises.The bigger Book-Tax Difference there is,the lower earning quality and shorter earning persistence the enterprises may have.Excessive earnings management will reduce the reliability of enterprise financial information,further unbalance information of capital market,which will end in misleading investors and financial information users.There are many motives for enterprise earning management,including capital market motives,contract motives and so on.Capital market,as an indispensable venue for enterprise financial information,will undoubtedly pose great effects on enterprise earning management by its investment orientation,market structure,and regulatory rules so as to affect enterprise Book-Tax Difference.Moreover,the investment orientation,market structure and regulatory rules will show how mature the capital market is.There are distinct differences in capital market maturity between the Mainland and Taiwan,especially in stock market.Taiwan witnessed the enterprise accounting standards reform since 2012.And the IFRS(International Financial Reporting Standards)has compulsorily been applied in enterprise since then.The Mainland also improved its enterprise income tax system,transforming the business tax to VAT(Value Added Tax)so as to further decrease the difference of accounting standards and finance regulations of they two.This paper selected enterprises in the Mainland and Taiwan as samples,systematically discussed retarding effects the capital market maturity imposed on enterprises earning management.Studies show that there are distinct difference of overall Book-Tax Difference between the Mainland and Taiwan.Regardless of factors such as impact of asset size or profitability,the overall Book-Tax Difference of listed enterprises in the two places varies significantly.A further analysis on Book-Tax Difference structure displays that distinct difference still exists whether considering the management Book-Tax Differences in the proportion of total Book-Tax Differences,or the management BookTax Differences in the proportion of total assets or total profit.But the management book-Tax Difference in the Mainland is higher than that in Taiwan as a whole.A further study on property rights shows that either in Taiwan or the Mainland,enterprises of different property rights will be quite different in internal Book-Tax Differences structure.The Book-Tax Differences of non state-owned enterprises is generally higher than that of state-owned enterprises,which means that non state-owned enterprises are the main causes of Book-Tax Differences in the two places.Furthermore,this paper defined maturity of capital market,and theoretically analyzed the retarding effects that capital market maturity imposes on earnings management and Book-Tax Differences.An empirical analysis is also made from dimensions like investment environment,investors structure and capital market openness.The results prove that capital market maturity is an important factor that affect enterprise BookTax Differences.It will reduce enterprise earning management by adjusting investment environment,upgrading investors structure and improving capital market openness so as to reduce the management Book-Tax Differences in enterprises.Eventually it will reduce the enterprise Book-Tax Differences.However,in different places,the retarding effects that capital market poses on profitability of listed enterprises will vary.As a whole,the retarding effects is greater in Taiwan than in the Mainland,especially in terms of proportion of institutional investors,fund investors and foreign investors.The further study on property rights also shows that retarding effects the capital market maturity imposes on Book-Tax Difference of non state-owned and state-owned enterprises vary,and the Book-Tax Difference in the Mainland is bigger than that in Taiwan.Specifically speaking,the state-owned enterprises are less affected by capital market maturity.But investor structure and capital market openness affect them greatly.It shows that main motives of earning management do not belong to capital motives.It’s no wonder that the capital market maturity has less effect on them.However,the increase in proportion of institutional investors and tradable shares will improve the capital structure of state-owned enterprises,balance shares,and enhance corporate governance.Therefore,it will has significant retarding effects on Book-Tax Difference of state-owned enterprises.For non state-owned enterprises,capital market maturity is the main factor to reduce enterprise earning management.According to what discussed above,it is easy to conclude that the main causes of Book-Tax Difference in capital market are non state-owned enterprises.Therefore,to improve capital market and further upgrade capital market maturity one can reduce the earning management of non state-owned enterprises.As a result,the overall Book-Tax Difference in capital market will decline.Finally,some guiding suggestions based on conclusion above will be offered in this paper.