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The measured book-tax gap is often used as a surrogate for one of the behaviors that influences the gap - earnings management or tax sheltering - without adjusting for the effect of other influences - GAAP changes, tax law changes, and macroeconomic conditions. This paper provides evidence on the quality of the unadjusted book-tax income gap as a proxy for earnings management or tax sheltering by adjusting for the three measurable factors: GAAP changes, macroeconomic conditions, and earnings management.
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