Earnings Management, Tax Compliance, and Institutional Factors
Posted: 13 Feb 2004
This discussion re-examines two major elements of Haw et al (2004). First, I present empirical evidence suggesting that tax compliance and earnings management are endogenous outcomes around the world. This result raises questions whether tax compliance is a causal determinant of either private control benefits or earnings management. I therefore outline a competing view, with supporting empirical evidence, that suggests that better investor protection laws and accounting standards can mitigate earnings management and, as a side benefit, increase corporate tax compliance. Second, I investigate the empirical validity of the Haw et al (2004) earnings management proxy. I find that it exhibits no association with relevant economic factors or with previously validated earnings management and accounting quality measures.
Keywords: Earnings Management, Tax, Institutional
JEL Classification: M41, M43, K42, E62, H26, K34
Suggested Citation: Suggested Citation