Anticipated Reductions in Tax Rates and Earning Management of Listed Companies: Evidence from China
The effects of tax rate changes on corporations’ earning management are not fully understood. As a transitional economy, China has listed companies with different ownership and special regulatory rules. We explore under the expectation of tax reduction whether there are differences in the way and de...
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| Format: | Article |
| Language: | English |
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Wiley
2021-01-01
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| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/2021/4259484 |
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| _version_ | 1832556469430517760 |
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| author | Mo Bai Dandan Song Helin Li |
| author_facet | Mo Bai Dandan Song Helin Li |
| author_sort | Mo Bai |
| collection | DOAJ |
| description | The effects of tax rate changes on corporations’ earning management are not fully understood. As a transitional economy, China has listed companies with different ownership and special regulatory rules. We explore under the expectation of tax reduction whether there are differences in the way and degree of earnings management implemented by different types of companies. Our study shows that firms under the anticipation of tax reduction make use of earning management, including delaying sales, taking unusual income-decreasing discretionary accruals, and so on, which leads to lower income in higher tax rate period. We find that private enterprises have more attention to reduce earning in the higher tax rate period than state-owned enterprises (SOEs), indicating that the ownership has effect on the extent of earning management. Moreover, under the specific regulations in Chinese stock market, we find that for those listed companies with negative net profit in the previous year, the priority is how to reverse losses rather than tax saving. |
| format | Article |
| id | doaj-art-643d0fa457944805b54cdfd7f8bc8abf |
| institution | Kabale University |
| issn | 1026-0226 1607-887X |
| language | English |
| publishDate | 2021-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Discrete Dynamics in Nature and Society |
| spelling | doaj-art-643d0fa457944805b54cdfd7f8bc8abf2025-02-03T05:45:21ZengWileyDiscrete Dynamics in Nature and Society1026-02261607-887X2021-01-01202110.1155/2021/42594844259484Anticipated Reductions in Tax Rates and Earning Management of Listed Companies: Evidence from ChinaMo Bai0Dandan Song1Helin Li2Tianjin University of Commerce, Tianjin, ChinaTianjin University of Commerce, Tianjin, ChinaTianjin University of Commerce, Tianjin, ChinaThe effects of tax rate changes on corporations’ earning management are not fully understood. As a transitional economy, China has listed companies with different ownership and special regulatory rules. We explore under the expectation of tax reduction whether there are differences in the way and degree of earnings management implemented by different types of companies. Our study shows that firms under the anticipation of tax reduction make use of earning management, including delaying sales, taking unusual income-decreasing discretionary accruals, and so on, which leads to lower income in higher tax rate period. We find that private enterprises have more attention to reduce earning in the higher tax rate period than state-owned enterprises (SOEs), indicating that the ownership has effect on the extent of earning management. Moreover, under the specific regulations in Chinese stock market, we find that for those listed companies with negative net profit in the previous year, the priority is how to reverse losses rather than tax saving.http://dx.doi.org/10.1155/2021/4259484 |
| spellingShingle | Mo Bai Dandan Song Helin Li Anticipated Reductions in Tax Rates and Earning Management of Listed Companies: Evidence from China Discrete Dynamics in Nature and Society |
| title | Anticipated Reductions in Tax Rates and Earning Management of Listed Companies: Evidence from China |
| title_full | Anticipated Reductions in Tax Rates and Earning Management of Listed Companies: Evidence from China |
| title_fullStr | Anticipated Reductions in Tax Rates and Earning Management of Listed Companies: Evidence from China |
| title_full_unstemmed | Anticipated Reductions in Tax Rates and Earning Management of Listed Companies: Evidence from China |
| title_short | Anticipated Reductions in Tax Rates and Earning Management of Listed Companies: Evidence from China |
| title_sort | anticipated reductions in tax rates and earning management of listed companies evidence from china |
| url | http://dx.doi.org/10.1155/2021/4259484 |
| work_keys_str_mv | AT mobai anticipatedreductionsintaxratesandearningmanagementoflistedcompaniesevidencefromchina AT dandansong anticipatedreductionsintaxratesandearningmanagementoflistedcompaniesevidencefromchina AT helinli anticipatedreductionsintaxratesandearningmanagementoflistedcompaniesevidencefromchina |