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The Impact of Earnings Management and Tax Planning on the Information Content of Earnings

11/2007; DOI: 10.2139/ssrn.1028808

ABSTRACT This paper examines the effect of tax planning and earnings management on the relative informativeness of book income and taxable income. We conduct two sets of tests documenting (1) the incremental effect of tax planning and earnings management on the relative informativeness of book and taxable income and (2) the relation between voluntary conformity and the relative informativeness of book and taxable income. Based on these two sets of tests, we conclude that tax planning and earnings quality jointly affect the relative informativeness of book and taxable income.

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    ABSTRACT: This paper reviews prior studies that provide an understanding of earnings quality concepts. It presents various definitions of earnings quality and discussed proxies used in empirical literature to measure earnings quality. Prior studies measure earnings quality by using time-series properties of earnings including earnings persistence, predictability, timeliness and volatility; relating accruals to future cash flows, associating earnings with stock market metrics such as stock prices and returns and assessing the level of discretionary accruals. The literature emphasises that the quality of earnings is very important as the earnings figure is widely used in many contractual agreements and investing decisions.
    International Conference on Governance & Strategic Management (ICGSM) 2014; 04/2014

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