Earnings management and deferred tax / Rohaya Md Noor, Nor’Azam Mastuki and Zanariah Aziz

This study investigates whether firms use deferred tax expense to meet earnings targets: (1) to avoid an earnings decline and (2) to avoid a loss. The current study replicates Phillips et al. (2003)’s study, where they found evidence that firms use deferred tax expense to manage earnings. The study...

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Main Author: Aziz, Zanariah
Format: Article
Language:English
Published: Accounting Research Institute (ARI) & Faculty of Accountancy 2007
Online Access:http://ir.uitm.edu.my/id/eprint/281/
http://ir.uitm.edu.my/id/eprint/281/1/AJ_ROHAYA%20MD%20NOOR%20MAR%2007.pdf
id uitm-281
recordtype eprints
spelling uitm-2812019-03-25T07:35:29Z http://ir.uitm.edu.my/id/eprint/281/ Earnings management and deferred tax / Rohaya Md Noor, Nor’Azam Mastuki and Zanariah Aziz Aziz, Zanariah This study investigates whether firms use deferred tax expense to meet earnings targets: (1) to avoid an earnings decline and (2) to avoid a loss. The current study replicates Phillips et al. (2003)’s study, where they found evidence that firms use deferred tax expense to manage earnings. The study examines the financial statements prepared for 2001 – 2003 of firms from consumer and industrial products listed on the first and second board of Bursa Malaysia. The final sample comprises of 493 firm-years base on the deferred tax expense reports for the three-year investigation periods, after filtering the outliers at 1st and 99th percentiles. Using Burgstahler and Dichev (1997) earnings distribution approach, Healy (1985) total accruals and Modified Jones model abnormal accruals (Dechow et al., 1995), the study finds evidence that firms use deferred tax expense to avoid a loss. This study also evidenced an increasing trend of deferred tax liabilities reported by firm from 1990 – 2004. The credit balance of deferred tax liabilities means firms report book income higher than taxable income, which indicates the firms’ tax planning strategies by crystallizing their tax liabilities to the future years. Accounting Research Institute (ARI) & Faculty of Accountancy 2007-06 Article PeerReviewed text en http://ir.uitm.edu.my/id/eprint/281/1/AJ_ROHAYA%20MD%20NOOR%20MAR%2007.pdf Aziz, Zanariah (2007) Earnings management and deferred tax / Rohaya Md Noor, Nor’Azam Mastuki and Zanariah Aziz. Malaysian Accounting Review, 6 (1). pp. 1-17. ISSN 1675-4077
repository_type Digital Repository
institution_category Local University
institution Universiti Teknologi MARA
building UiTM Institutional Repository
collection Online Access
language English
description This study investigates whether firms use deferred tax expense to meet earnings targets: (1) to avoid an earnings decline and (2) to avoid a loss. The current study replicates Phillips et al. (2003)’s study, where they found evidence that firms use deferred tax expense to manage earnings. The study examines the financial statements prepared for 2001 – 2003 of firms from consumer and industrial products listed on the first and second board of Bursa Malaysia. The final sample comprises of 493 firm-years base on the deferred tax expense reports for the three-year investigation periods, after filtering the outliers at 1st and 99th percentiles. Using Burgstahler and Dichev (1997) earnings distribution approach, Healy (1985) total accruals and Modified Jones model abnormal accruals (Dechow et al., 1995), the study finds evidence that firms use deferred tax expense to avoid a loss. This study also evidenced an increasing trend of deferred tax liabilities reported by firm from 1990 – 2004. The credit balance of deferred tax liabilities means firms report book income higher than taxable income, which indicates the firms’ tax planning strategies by crystallizing their tax liabilities to the future years.
format Article
author Aziz, Zanariah
spellingShingle Aziz, Zanariah
Earnings management and deferred tax / Rohaya Md Noor, Nor’Azam Mastuki and Zanariah Aziz
author_facet Aziz, Zanariah
author_sort Aziz, Zanariah
title Earnings management and deferred tax / Rohaya Md Noor, Nor’Azam Mastuki and Zanariah Aziz
title_short Earnings management and deferred tax / Rohaya Md Noor, Nor’Azam Mastuki and Zanariah Aziz
title_full Earnings management and deferred tax / Rohaya Md Noor, Nor’Azam Mastuki and Zanariah Aziz
title_fullStr Earnings management and deferred tax / Rohaya Md Noor, Nor’Azam Mastuki and Zanariah Aziz
title_full_unstemmed Earnings management and deferred tax / Rohaya Md Noor, Nor’Azam Mastuki and Zanariah Aziz
title_sort earnings management and deferred tax / rohaya md noor, nor’azam mastuki and zanariah aziz
publisher Accounting Research Institute (ARI) & Faculty of Accountancy
publishDate 2007
url http://ir.uitm.edu.my/id/eprint/281/
http://ir.uitm.edu.my/id/eprint/281/1/AJ_ROHAYA%20MD%20NOOR%20MAR%2007.pdf
first_indexed 2023-09-18T22:44:22Z
last_indexed 2023-09-18T22:44:22Z
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