Empirical Study On The Relationship Between Earnings Management And Income Tax Burden In Listed Industrial Companies

This paper examines whether listed companies consider tax factors and whetherthey take advantage of the difference between accounting policies and tax policies(called Book-Tax differences below) in the process of earnings management. Thispaper also focuses on how listed companies operate in the process of earningsmanagement and to what extends corporate income tax influence the process. Theempirical results show that: China’s industrial listed companies really took advantageof the Book-Tax differences in the process of earnings management. Those companieswith higher corporate income tax rate were more willing to take earnings managementbehavior. After the tax reform in2008, corporate income tax law and accountingstandards difference becomes smaller, operations of sample companies usingBook-Tax differences earnings management are accordingly suppressed and weaker.In this paper, theoretical analysis and empirical research method are combined tofinish the research. Based on the analysis of the theories, multiple regression modelswere utilized to test the empirical data. Manipulated accruals indicators can be a goodmeasurement of the level of earnings management of listed companies and thecorporate effective income tax rate can be a good measurement of the burden of thereal tax burden of a business. Therefore,2008-2012data of China’s industrial listedcompanies has been collected to do the research, referencing Mills and Newberry(2001), YE Kangtao (2009) research model. Observation and analysis of the samplecompanies showed manipulated accruals will affect its non-normal tax difference. Onthis basis, adding the actual negative factors affecting income tax, corporate taxburden to observe how it affects the degree of impact on earnings managementbehavior with Book-Tax differences. We excluded the losses in the sample data(because it cannot calculate the actual profit with negative tax burden rate). Theempirical results show that China’s industrial listed companies indeed adjusted thedifferences between accounting profit and taxable income in order to avoid the part ofthe income tax burden. The presence of earnings management behavior is every1yuan increase in manipulated accruals of the sample companies, in which0.747yuancan avoid tax by adjusting the differences between accounting profit and taxableincome. According to the results of a comparative analysis of grouping researchaccording to tax burden (effective tax rate no less than20%belong to high-tax group, effective tax rate no less than20%belong to low-tax group) shows that companieswith a low tax burden don’t need to take earnings management. Companies bearinghigh tax burden for each additional manipulation of accruals of1yuan, there will be0.862yuan avoided tax burden through adjusting Book-Tax differences, which ishigher than the total sample level. Thanks to tax reform in the transitional period,differences between accounting policies and tax regulations were narrowed so theearnings management of listed companies using its space is reduced accordingly.Whether high or low levels of tax burden of the sample companies manage theirsurplus tax factors process of manipulating the tax difference would inhibit behavior.Based on the study, the paper got two policy implications: To reduce the differencesbetween accounting policies and tax laws and to widely explode tax-relatedinformation of listed companies.There are some deficiencies in this paper. Firstly, only industrial listed companiesare selected as research object. Secondly, as the paper studies earnings management oflisted companies in tax avoidance, so earnings management and corporate income taxburden relations characteristics of loss companies can be include in after researches.Thirdly, because China’s listed companies do not disclose the amount of deductibletax of foreign aspects, so the data analysis section of this article does not consider theinformation.