Giampaolo Arachi, Valeria Bucci

The Role of Taxes in Earnings Management: Evidence from Writedowns of Long-term Equity Investments

Section: Articles
FinanzArchiv (FA)

Volume 75 () / Issue 3, pp. 229-265 (37)
Published 06.02.2019

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This paper provides new empirical evidence on the role of taxes in discretionary asset writedowns. By focusing on a class of assets that has not been analyzed by prior research, namely long-term equity investments, and by exploiting exogenous changes in tax legislation in Italy, we are able to disentangle the influence of taxes on the decision to write down and on the magnitude of a writedown, conditional on taking the decision to write down. We find that taxes affect the timing of discretionary writedowns but not their magnitude. Consistently with this pattern, we also find that tax-driven opportunistic reporting does not significantly alter the effective tax burden of firms.

Giampaolo Arachi No current data available.

Valeria Bucci No current data available.