Cost behavior around corporate tax rate cuts

Jesper Per Alexander Haga; Henrik Höglund; Dennis Sundvik

doi:10.1016/j.intaccaudtax.2019.01.001

Cost behavior around corporate tax rate cuts

Jesper Per Alexander Haga, Henrik Höglund, Dennis Sundvik

Research output: Contribution to journal › Article › Scientific › peer-review

10 Citations (Scopus)

Abstract

In this study, we investigate cost behavior of companies in Organisation for Economic Co-operation and Development (OECD) member countries before corporate tax rate cuts become effective. We consider such events to generate strong incentives for intertemporal cost shifting. We analyze the time period between 2011 and 2016, which includes 32 tax reductions. The results show that companies exhibit income-decreasing selling, general, and administrative cost behavior before tax rate cuts, and that the extent is proportional to the magnitude of the decrease in the tax rate. Furthermore, we find stronger evidence of this form of tax-induced earnings management in lower tax compliance and code law countries, as well as for private companies.

Original language	English
Peer-reviewed scientific journal	Journal of International Accounting, Auditing and Taxation
Volume	34
Issue number	March
Pages (from-to)	1-11
Number of pages	11
ISSN	1061-9518
DOIs	https://doi.org/10.1016/j.intaccaudtax.2019.01.001
Publication status	Published - 15.01.2019
MoE publication type	A1 Journal article - refereed

Keywords

512 Business and Management
Cost behavior
Earnings management
Tax incentive
Tax reform

Areas of Strength and Areas of High Potential (AoS and AoHP)

AoS: Financial management, accounting, and governance

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AU - Sundvik, Dennis

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AB - In this study, we investigate cost behavior of companies in Organisation for Economic Co-operation and Development (OECD) member countries before corporate tax rate cuts become effective. We consider such events to generate strong incentives for intertemporal cost shifting. We analyze the time period between 2011 and 2016, which includes 32 tax reductions. The results show that companies exhibit income-decreasing selling, general, and administrative cost behavior before tax rate cuts, and that the extent is proportional to the magnitude of the decrease in the tax rate. Furthermore, we find stronger evidence of this form of tax-induced earnings management in lower tax compliance and code law countries, as well as for private companies.

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Cost behavior around corporate tax rate cuts

Abstract

Keywords

Areas of Strength and Areas of High Potential (AoS and AoHP)

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