Abstract
In this study, we investigate cost behavior of companies in Organisation for Economic Co-operation and Development (OECD) member countries before corporate tax rate cuts become effective. We consider such events to generate strong incentives for intertemporal cost shifting. We analyze the time period between 2011 and 2016, which includes 32 tax reductions. The results show that companies exhibit income-decreasing selling, general, and administrative cost behavior before tax rate cuts, and that the extent is proportional to the magnitude of the decrease in the tax rate. Furthermore, we find stronger evidence of this form of tax-induced earnings management in lower tax compliance and code law countries, as well as for private companies.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callMore From: Journal of International Accounting, Auditing and Taxation
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
