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Earnings management in South Korea: Using tax expenses

Global Business and Finance Review, 2016, 21(1), , pp.24-32 [Peer Reviewed Journal]

2016. This work is licensed under https://creativecommons.org/licenses/by-nc/4.0/ (the “License”). Notwithstanding the ProQuest Terms and Conditions, you may use this content in accordance with the terms of the License. ;ISSN: 2384-1648 ;ISSN: 1088-6931 ;EISSN: 2384-1648 ;DOI: 10.17549/gbfr.2016.21.1.24

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  • Title:
    Earnings management in South Korea: Using tax expenses
  • Author: Ji, Hyunmi
  • Subjects: Earnings management ; Earnings target ; Effective tax rate ; Tax expenses ; Tax rates ; 경영학
  • Is Part Of: Global Business and Finance Review, 2016, 21(1), , pp.24-32
  • Description: We expect that tax expenses will provide a last opportunity to meet an earnings target, and involve the complexity and discretion necessary for information asymmetry to persist. Hence, tax expenses are powerful settings to examine earnings management among a wide range of firms. Considering this background, we hypothesize that changes in tax expenses are related to whether firms miss their reported earnings of the previous year. We also examine the possibility and effectiveness of earnings management through tax expenses depending on the amount to be managed. Consistent with our hypothesis, we find that firms decrease the fourth quarter effective tax rate (ETR) to meet the previous year's reported earnings. However, tax expenses could be a successful tool to manage earnings, but only when unmanaged earnings are very close to a target. These results provide general evidence that tax expenses are used to manage earnings, and suggest that stricter external audit procedures for tax expenses are required to prevent self-interested discretion by managers on their firm's tax returns.
  • Publisher: Seoul: People & Global Business Association (P&GBA)
  • Language: English
  • Identifier: ISSN: 2384-1648
    ISSN: 1088-6931
    EISSN: 2384-1648
    DOI: 10.17549/gbfr.2016.21.1.24
  • Source: Alma/SFX Local Collection
    ProQuest Central
    DOAJ Directory of Open Access Journals
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