Research On Association Between Changes In Deferred Tax And Management Of Corporate Earnings

Since2007, China has implemented the new accounting standards, compared with the old standard system, many changes have taken place in the new system. Among that the more interesting thing is the transformation of accounting concept from the view of the profit and loss to the assets and liabilities view. The newly issued IAS18Income Taxes requires the listed company must adopt the balance sheet liability method, and introduces the concept of temporary differences, because of the book value and the tax base is different, which can produce temporary differences between accounting profit and taxable income, also creates a deferred income tax assets and deferred income tax liabilities, at the same time also can produce the deferred income tax revenue or deferred income tax expenses. It also opens a new channel of earnings management for enterprises. Based on this, this article will further explore the changes of deferred income tax and the earnings management behavior of listed companies in China.This article combines the theory and the method of empirical to study the above issues. According to the return on equity of listed companies (excluding non-recurring gains and losses) could be divided into three categories listed respectively studied: high-profit-making enterprises, low-profit enterprises and loss-making enterprises. Then on the basis of theoretical analysis,put forward the research hypothesis, and based on Ye Kangtao(2006) and Wei Tao(2007)’s method, build the model that can reflect the relationship between deferred income tax and earnings management. At last, using Stata statistical analysis tools to do the empirical test.Based on the above idea, this paper will be divided into five parts. The first part is introduction, mainly introduces the research background, significance, research methods and framework; The second part is the literature review, introduces the domestic and foreign study about the meaning of earnings management, motivation, method and measure of research results and the cross of income tax and deferred income tax both at home and abroad; The third part is the theoretical foundation and research design, including theoretical foundation, hypothesis, the sample and the selection of relevant variables and model building; The fourth part is the empirical results of this paper; The fifth part is the research conclusions in this paper.On the basis of above work, in this paper, the study found that both high-profit-making enterprises, low-profit enterprises or loss-making enterprises, the occurrence of earnings management behavior will be accompanied by changes in the deferred income tax. The common motives including loss before the big bath, motivation loses, margins smooth, etc., and the main ways are the dispose of assets, government subsidies and other non-operating income and expenses, depreciation reserves and its back. The empirical results also show that deferred tax changes can indeed as the profitability of listed companies, an indicator of profit smooth, etc. This paper also examines the loss-making enterprises, low-profit enterprises and high-profit-making enterprises’ deferred tax changes and its various motives, and use the deferred tax changes as indicators, found its use that avoid losses and avoid delisting behaviors is greater than manipulation of accruals.