Tax Incentives for Earnings Management in Business Groups

Document Type : Original Article

Authors

1 Assistant Professor of Accounting,Sanabad Golbahar Institute of Higher Education

2 M.A in Accounting, Sanabad Golbahar Institute of Higher Education, Golbahar

Abstract

Holdings and business groups have more incentives to manipulate their earnings for tax purposes. They have higher flexibility for transferring income through intragroup transactions by managing transfer pricing between each other. Also, the members of business groups have the ability to allocate incomes and losses between taxable and tax-exempted firms to pay less taxes. The aim of this study was to identify and explain the tax incentives in favor of business groups in the management of listed companies in Stock Exchange of Tehran. To test research hypotheses, unbalanced panel model and OLS were used. The results of examining 146 listed companies in Tehran Stock Exchange from 2005-2014 showed that the companies belonging to the business groups manage their earnings more than independent firms. Also, the results showed that earnings management in companies belonging to various business groups is higher compared with other groups´ (undiversified) firms. The results showed that the main motivation of earnings management in the business groups (undiversified and diversified) is tax incentive. In fact, the goal of earnings management in the companies of business groups is paying less tax. The results show that in business groups (diversified and undiversified), in which the principal unit owns over 50% of the subsidiary company, higher earnings management occurs.

Keywords

Journal of Iranian Accounting Review
Volume 2, Issue 7 - Serial Number 7
September 2015
Pages 83-110

Files

Share

How to cite

Statistics