Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Management

Program Name/Specialization

Accounting

Faculty/School

Lazaridis School of Business and Economics

First Advisor

Flora Niu

Advisor Role

Co-advisor

Second Advisor

Tao Zeng

Advisor Role

Co-advisor

Third Advisor

Kai Chen

Advisor Role

Committee Member

Abstract

This dissertation comprises three independent but highly related essays that investigate the effects of tax planning and/or earnings management. The first essay investigates how high tax planning and/or aggressive earnings management affect the relative and incremental value-relevant information of taxable income, book income, and cash flows from operations (CFO). Regarding the effects of tax planning, first, I postulate and show that high tax planning reduces the relative and incremental information of taxable income to CFO. Second, high tax planning increases the relative and incremental information of CFO to the combined information set of taxable income and book income. Third, high tax planning also increases the relative and incremental information of CFO to book income. Concerning the effects of aggressive earnings management, I predict and show that the incremental information of CFO to book income and the combined information set of taxable income and book income, respectively, is increased for firms aggressive in earnings management. With respect to the combined effects of high tax planning and aggressive earnings management, I conjecture and find strong evidence that the relative and incremental information of CFO to either book income or the combined information set of taxable income and book income is increased for firms aggressive in both tax planning and earnings management.

The second essay examines aggressive earnings management, high tax planning, and their joint impacts on the persistence of book income and its components. First, I predict and show that aggressive earnings management reduces the persistence of discretionary accruals and thus the persistence of total accruals and book income. Second, I postulate and demonstrate that high tax planning reduces the persistence of CFO and thus the persistence of book income. Third, I find that, jointly, aggressive earnings management and high tax planning reduce the persistence of discretionary accruals and CFO and thus the persistence of book income. Finally, I demonstrate that firms aggressive in both earnings management and tax planning exhibit the least persistent total accruals, CFO, and book income.

The third essay investigates how tax planning affects the predictive ability of taxable income for firms’ future operating performance. Prior studies show that taxable income contains information about future earnings and positively predicts firms’ future performance. However, I postulate and find that high tax planning reduces the predictive ability of taxable income for future performance, which is proxied by one-, two-, and three-years-ahead CFO and book income. This finding suggests that investors should take into account the level of the firm’s tax aggressiveness when using taxable income to predict a firm’s future performance. In sum, the findings of this dissertation are of interest to both the accounting professionals and the capital market participants. Overall, this dissertation contributes to the earnings management literature and tax planning research.

Convocation Year

2022

Convocation Season

Fall

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