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Earnings and Balance-Sheet Properties and the Interplay of Tax Incentives and Tax Enforcement

SSRN Electronic Journal
2020
  • 0
    Citations
  • 1,972
    Usage
  • 1
    Captures
  • 0
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Usage
    1,972
    • Abstract Views
      1,972
  • Captures
    1

Article Description

This paper analyzes the joint association of tax incentives and tax law enforcement strictness on private firms' earnings and balance sheet properties. It answers a call for additional research on why "there is (...) substantial within-country variation in managers' incentives to [manage] earnings" (LaFond et al. (2007), p. 14). There is evidence that tax laws in practice are enacted to a different extent within a country's supposedly homogenous legal framework. The key results are that stricter tax law enforcement impairs managers' ability or willingness to engage in income-decreasing accrual earnings management. On the downside, managers instead seem to resort to real earnings Management choices which are associated with potentially negative long-term real business impact but covered by the business judgment rule.

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