Deferred Tax Expense and Earnings Management
Date Issued
2004
Date
2004
Author(s)
Yu, Zhi-Rong
DOI
zh-TW
Abstract
Prior research has sought to detect earnings management by using accrual measures as proxies for managerial discretion. These accrual models may generate type Ⅰand type Ⅱ errors and reflect measurement errors due to the misclassification of normal accruals as abnormal accruals. In this paper we try to find other variable as a metric for detecting earnings management.
Since there exists differences between GAAP and tax rules regarding the recognition of revenues, expenses, gains, and losses, managers may have incentives to manipulate earnings by the difference without increasing income taxes payable, which leads to deferred tax expense. The purpose of this paper is to investigate the incremental usefulness of deferred tax expense to abnormal accruals in detecting earnings management.
The sample analyzed in this paper includes companies listed in Taiwan Securities Exchange and traded Over the Counter for the period 1995-2002. Financial institutions, securities firms, and firms without complete data for analysis are excluded from the sample. Two kinds of earnings management incentives are examined: “avoid reporting an earnings decrease” and “avoid reporting a loss”. We use total accrual model, modified Jones model, and forward-looking model to estimate discretionary accruals.
The results show that deferred tax expense is incrementally useful beyond three abnormal accruals in detecting earnings management to avoid an earnings decline, and is incrementally useful to abnormal accruals estimated using modified Jones model and forward-looking model in detecting earnings management to avoid a loss. The implication from this study is that deferred tax expense can supplement accruals measures in detecting earnings management to avoid an earnings decline and to avoid a loss.
Subjects
裁量性應計項目
盈餘管理
遞延所得稅費用
earnings management
deferred tax expense
discretionary accrual
Type
other