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Political connections and tax-induced earnings management: Evidence from China

Li, Chen, Wang, Yaping, Wu, Liansheng and Xiao, Jason Zezhong 2016. Political connections and tax-induced earnings management: Evidence from China. The European Journal of Finance 22 (4-6) , pp. 423-431. 10.1080/1351847X.2012.753465

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Abstract

We use the occasion of a change in tax policy that raised the tax rate for many of the listed companies in China to examine tax-induced earnings management (TEM) from the perspective of political connections. We find that when the tax rate increased, only those affected firms with politically connected management engaged in TEM. This suggests that, in addition to motivation for managing earnings, capability of influencing tax authorities is also an important determinant of TEM. We also find that TEM helped the firms with politically connected management to reduce their tax burden.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
H Social Sciences > HJ Public Finance
J Political Science > JQ Political institutions Asia
Uncontrolled Keywords: China, earnings management, effective tax rate, political connections, tax policy
Additional Information: PDF uploaded in accordance with publisher's policies at http://www.sherpa.ac.uk/romeo/issn/1351-847X/ (accessed 10.06.16).
Publisher: Taylor and Francis
ISSN: 1351-847X
Date of First Compliant Deposit: 10 June 2016
Date of Acceptance: 23 November 2012
Last Modified: 11 Oct 2017 20:00
URI: http://orca.cf.ac.uk/id/eprint/46564

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