The Impact of Corporate Tax Rate Change for Earnings Management: The Case Study Reform Taxation Act in 1380

Today, the concept of the earnings management has attracted the attention of many researchers, so that more researchers are looking at the reasons and motivations for earnings management. One reason for earnings management is corporate income tax rate. The purpose of this study is to investigate the effects of corporate tax rate changes on the earnings management, according to the 2002 tax reform act. To do so, a sample of 65 companies listed in Tehran Stock Exchange was analyzed from 2001 to 2003. The criteria used to measure earnings management, is discretionary accruals. Characteristics of the company that was used in the study include: firm size, financial leverage, growth rate of the company and company ownership.
The results of the study indicated that the companies in the prior year of tax rate reduction began to do decreasing earnings management to reduce tax costs. The results also showed in prior year of tax rate reduction companies with low financial leverage used decreasing earnings management to reduce tax costs. The results for the growth rate of the company and discretionary accruals also showed that in the prior year of tax rate reduction, companies with low growth rate used of decreasing earnings management. The results also show that there is no significant relationship between the type of ownership (private or state) and earnings management and also between the firm size and discretionary accruals in prior year of tax rate reduction.