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Do firms using real earnings management care about taxes? Evidence from a high book-tax conformity country

Michał Kałdoński and Tomasz Jewartowski

Finance Research Letters, 2020, vol. 35, issue C

Abstract: Using a sample of 1,149 firm-year observations we show that benchmark-beating firms entering into real earnings manipulation are less willing to engage in aggressive tax planning. Controlling for a “normal level” of tax aggressiveness within the industry we provide evidence that average GAAP effective tax rate for benchmark-beaters is higher than for their industry peers. One of the possible reasons may be unwanted scrutiny by tax authorities and external monitors that hinders the real activities manipulation. All in all, our results suggest that real earnings management is even more costly than is widely considered.

Keywords: Earnings management; Corporate tax aggressiveness; Earnings targets (search for similar items in EconPapers)
JEL-codes: G30 H26 M40 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/

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