The Hypothesis of Avoiding Losses and Decreasing Earnings through Tax Expense
La Hipótesis de la Utilización del Impuesto Sobre Beneficios para Evitar Pérdidas y Descensos en Resultados
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- Los autores agradecen los comentarios realizados al artículo de los dos evaluadores anónimos y del editor (Manuel Illueca)
Abstract
In the first part of this paper, we examine whether there is a discontinuity at zero (i.e., a “kink”) in the distribution of profits and increases of profits. Second, we investigated the effect that the recognition of tax expenses generates in the distribution of earnings. Beaver, McNichols and Nelson (2007) have defended that the observed discontinuity in earnings couldn’t be enough to confirm the manipulation of results by management. In contrast, they argue that the observed discontinuity in earnings could be due to the asymmetric effect from two particular items: the tax expense and the special items (because the different way to recognizing income and expenses, due to the bias induced by the accounting principle of conservatism). In the Spanish context, the empirical evidence supports the thesis of Beaver, McNichols and Nelson (2007) for the period 1996-2000. However this hypothesis relaxes from exercise 2001, in agreement with the carried out fiscal reform in 2001.
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References
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