Cardiff University | Prifysgol Caerdydd ORCA
Online Research @ Cardiff 
WelshClear Cookie - decide language by browser settings

Earnings management and deferred tax

Holland, Kevin ORCID: and Jackson, Richard H. G. 2004. Earnings management and deferred tax. Accounting and Business Research 34 (2) , pp. 101-123. 10.1080/00014788.2004.9729956

Full text not available from this repository.


This study analyses the deferred tax provisions of firms during a period in which the firms' incentive to manage earnings may have been be particularly strong and in which firms made disclosures in relation to partial deferred tax provisions which revealed readily their under- or over-provision of deferred tax. Using a sample of 58 firms for the two years 1991 and 1992, the magnitude of the under- or over-provisions found is economically significant, amounting, on average, to around 20% of the maximum potential deferred tax liability and, more important, 9% of profit or loss before tax. This paper takes such under- and over-provision of deferred tax and investigates its relationship with a number of posited explanatory variables - as derived and developed from the earnings management literature. In a multivariate setting it is found that the level of under-/over-provision is related to the following characteristics: whether the firm is reporting a pre-tax loss or a pre-tax profit; the extent of adjustment to prior year tax; and the level of surplus advance corporation tax (ACT). These findings support a general profit- smoothing hypothesis, and the finding in relation to ACT suggests that firms take an overall view in determining the required level of provision in order to manage earnings, rather than concentrating upon particular line items. There is also weaker evidence of a relationship between the level of under-/over-provision and firms' levels of gearing and effective tax rates.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > HG Finance
H Social Sciences > HJ Public Finance
Publisher: Taylor & Francis
ISSN: 0001-4788
Last Modified: 25 Oct 2022 09:09

Citation Data

Cited 21 times in Scopus. View in Scopus. Powered By Scopus® Data

Actions (repository staff only)

Edit Item Edit Item