Earnings Management in Business Groups: Tax Incentives or Expropriation Concealment?

43 Pages Posted: 26 Jul 2006 Last revised: 11 Dec 2013

See all articles by Christof Beuselinck

Christof Beuselinck

Catholic University of Lille - IESEG School of Management

Marc Deloof

University of Antwerp; University of Antwerp - Antwerp Management School

Date Written: April 1, 2006

Abstract

This study provides evidence that Belgian firms affiliated to a business group (holding) manage their earnings more than stand-alone firms. Earnings management is especially more prevalent in fully owned group firms compared to group firms with minority shareholders. This evidence is consistent with the hypothesis that controlling shareholders face fewer constraints to manage earnings if opportunistic earnings management cannot adversely affect the value of minority shareholders and is inconsistent with the claim that group firms would engage in earnings management to hide controlling shareholders’ self-serving transactions. On the incentive part, we find that group firms strategically manage earnings in response to tax incentives. More specifically, we show that signed discretionary accruals of group firms depend significantly more on the marginal tax rate status of the firm as compared to independent firms. Finally, we document that earnings management is particularly facilitated through intra-group transactions.

Keywords: business groups; earnings management; marginal tax rate; ownership structure

JEL Classification: G32, H26, M41

Suggested Citation

Beuselinck, Christof and Deloof, Marc, Earnings Management in Business Groups: Tax Incentives or Expropriation Concealment? (April 1, 2006). Available at SSRN: https://ssrn.com/abstract=919681 or http://dx.doi.org/10.2139/ssrn.919681

Christof Beuselinck (Contact Author)

Catholic University of Lille - IESEG School of Management ( email )

3 Rue de la Digue
Office: A321
Puteaux, 92800
France
+33320545892 (Phone)

Marc Deloof

University of Antwerp ( email )

Prinsstraat 13
Faculteit TEW
Antwerpen, 2000
Belgium
+32 3 265 41 69 (Phone)
+32 3 265 47 99 (Fax)

HOME PAGE: http://https://www.uantwerpen.be/en/staff/marc-deloof/

University of Antwerp - Antwerp Management School ( email )

Boogkeers 5
Antwerp, 2000
Belgium

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
285
Abstract Views
1,925
rank
129,009
PlumX Metrics