Fiscal Support and Earnings Management

Guanming He

The International Journal of Accounting, 2016, vol. 51, issue 1, 57-84

Abstract: It is well documented that firms tend to manipulate earnings before IPO (initial public offerings) and SEO (seasoned equity offerings). This study contributes to the literature by providing the first evidence on whether and how fiscal support in the form of preferential tax treatment and financial subsidy affects a firm's earnings management behaviors. Using data for Chinese firms that have conducted IPO and SEO, I find that firms have a lower level of earnings management prior to the offerings if they enjoy more preferential tax treatment or more financial subsidies from local governments. My results are consistent with the view that firms that receive stronger fiscal support have smaller demand for earnings management, which is a costly tool for a firm to achieve its desired earnings targets.

Keywords: Fiscal support; Earnings management; Financial subsidy; Income tax preference (search for similar items in EconPapers)
JEL-codes: G14 G15 G18 H32 M41 M48 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:accoun:v:51:y:2016:i:1:p:57-84

DOI: 10.1016/j.intacc.2016.01.009

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