An Empirical Study On Earnings Management And The Listed Corporate Income Tax Burden

Managers often face a tradeoff between financial reporting cost and taxation cost when they manipulate earnings.Therefore, they usually have the incentives to manipulate non-taxable earnings to avoid the tax obligation of earnings management. We support the hypothesis by examining the relation between book-tax differences and earnings management with the method of Regression analysis.We especially pay attention to the relationship between the earnings management through non-taxable earnings and the income tax burden. Our analysis shows that book-tax differences are positively related with earnings management.We further discover that the companies in the higher tax rate group are more likely to escape the tax obligation of earnings management through non-taxable earnings. And we found the earnings management through non-taxable earnings is normal. Our analysis also implies that the tax evasion through non-taxable items is quite limited.For one dollar manipulated earnings, only 2.7 cents are exempted from tax obligation,which implies that managers would rather pay tax for earnings management in order not to induce the suspicion of capital market or tax authority.We also find that the companies in the higher tax rate group have strong incentive to avoid tax obligation through non-taxable items. For our sample, when income tax rate increase 1 percent point,the ratio of book-tax differences to total assets will increase by 0.02; compared with lower tax rate group,the companies in the higher tax rate group could save tax expenses of RMB32.9 million through non-taxable earnings manipulation.There are four parts in this paper. Corresponding contents are as follows:The first part is about the introductions of the article's research context, research method and research content, including the charpter1, 2. It also has reviewed and analyzed the relevant basic theories related to the earnings management and the income tax burden.The second part is the charpter3, it explains the conception and theories about the earnings management and the income tax burden.The third part of the paper which includes charpter4, 5, is the most important part in this paper. It does an empirical study about the relationship of the earnings management and the income tax burden from the view of the book-tax differences with the Jones Model and some other models.The fourth part comes to the conclusion that the earnings management through non-taxable earnings is ubiquity. and Our analysis also implies that the tax evasion through non-taxable items is quite limited.For one dollar manipulated earnings, only2.7cents is exempted from tax obligation .At last we put forward a series of policies and suggestions to avoid the earnings management through non-taxable earnings.