Study about tax incentives for the accounting earnings management in brazilian public companies

Abstract

Previous studies about the influence of taxing on accountancy have shown that companies have incentives to manage their earnings aiming to reduce taxes. This fact suggests that managers have a discretionary behavior over the accounting components equity and income with the purpose of reducing the taxable earnings through accounting maneuvers; therefore, the value of the taxable earnings affects the amount of accruals present in the accounting results of companies. The objective of this study was to check whether the accounting earnings management is motivated by tax issues. The explanatory and descriptive survey was based on a sample of 286 firms-year, made up of the 50 largest Brazilian public companies listed in the magazine Exame Melhores e Maiores 2006, covering the period between 2000 and 2005. The research used McNichols and Wilson’s (1998) general earnings management model and also the modified Jones and KS operational models to estimate accruals. The results show that the econometric models have low predictive power; in relation to the research hypothesis, it cannot be affirmed that tax incentives have an affect on the measuring  process of accounting numbers in Brazilian public companies.

Key words: earnings management, tax accounting, accounting information quality.