The Research Of Earnings Management In Executing Pretax Additional Deduction Policy For The Enterprises

Innovation is the source of economic growth, but positive externalities and high risk make it difficult to obtain compensation through the market mechanism. Only depending on the supply of the market mechanism, it is easy to result in market failure. It is necessary to obtain direct R&D funding and indirect tax incentives from the government to stimulate business innovation activities. The presence of tax is the punishment of the success on R & D activities, which will weaken the effort of corporate into motivation, and is not good for improving R&D efficiency. Fortunately, tax incentives policies can increase innovation excitation by decreasing the punishment of tax. Pretax additional deduction policy is the most widely used policy among all the tax incentives polices. But many studies have shown that the implementation of this policy is not ideal and the design of the policy has many deficiencies. In this paper, we use the double difference method to research the impact of this policy to corporate R&D investment and efficiency of 2008 and 2013, respectively when the policy was first published and expanding the deductible range. In addition, we analyzed the complexity of the R&D activities, the variety of the policy, the subjectivity of accounting treatment and imperfect supervision of the policy, resulting that the corporates may use this policy to make earnings management, and finally we also test the corporate earnings management behavior and some other factors. The study found, after the publication and the expansion of the pretax additional deduction policy in 2008 and 2013, the R&D efficiency is not increased and the corporate also reached the purpose of profits smoothing and reducing manipulated accruals; and the private corporates make the ROA more smoothing and reduce more manipulated accruals; and the corporates whose profits were less than zeros reduce more manipulated accruals. Through the results, we suggest that the government should pay more attention to the problem appearing in carrying out the policy, and make the application process and regulatory process better as well to truly promote R&D activities of corporates.