Earnings Management in Response to The Alternative Minimum Tax in Taiwan
Date Issued
2007
Date
2007
Author(s)
Chu, Chi-Ming
DOI
zh-TW
Abstract
The purposes of the “Income Basic Tax Act” (or Alternative Minimum Tax, AMT) are to improve tax equity, secure tax revenue, and establish the basic requirements for profit-seeking enterprises to fulfill income tax obligation as a contribution to public finance.
Since the AMT may induce some profitable companies to manage discretionary accruals and real activities for alleviating tax burden, this study investigates the impact on earnings management as corporations responded to the enactment of the AMT. Firstly, we compute the “discretionary accruals” by the Modified Jones Model and “abnormal cash flows from operation”, “abnormal ending inventories”, etc. by Roychowdhury’s (2006) “real activities manipulation model”. Secondly, we employ discretionary accruals and abnormal items to measure earnings management. We anticipate that companies which might be affected by the AMT shift earnings from 2006 to 2005 for the purpose of preventing taxes from increasing.
Inferences made from the empirical results are summarized as follows:
1. Firms which are potentially influenced by AMT tend to manage discretionary accruals and real activities to minimize the burden of the AMT.
2. Firms in the IT industry engage in more manipulation activities through managing discretionary accruals and real activities in order to minimize the cost of the AMT as compared to firms in other industries.
3. The executives do not engage in more manipulation activities through managing discretionary accruals and real activities in order to minimize the cost of AMT for their self-interests.
Subjects
盈餘管理
最低稅負制
所得基本稅額條例
裁量性應計數
實質交易操作
earnings management
alternative minimum tax (AMT)
discretionary accruals
real activities manipulation
Type
other
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