Analysis of Corporate Income Tax Rate Changes and Earnings Management

Abstract

Ozet: It is known that tax is one of the biggest contributor to state income all over the world. For Indonesia, income tax contribute an average of 36% to the state’s income. With the high contribution of tax, government could adjust the income tax rate in order to increase the tax income. However, the high rate of income tax would have an impact to investment decision as tax will reduce the net income. Usually the taxpayer will apply an earnings management in order to avoid high tax payment. Several previous research have been analyzed the determinants of earnings management and correlation between corporate income tax rate changes and earnings management. This research will be focused on Indonesian listed corporations and several events of corporate income tax rate changes in the last five years. Using discretionary accrual as an earnings management measurement, we found there is a significant impact of corporate income tax rate changes to corporate earnings management with the evidence of income minimization practice. While for earnings management determinant, we only found one variable out of four variables we tested in this research: earnings pressure which is significant in 10%.