Do Tunisian firms manage their earnings around the corporate tax rate cut?


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Earnings management (EM, hereafter), which affects the quality of corporate financial information, continues to receive increased attention from practitioners and legislators. The paper deals with this topic and attempts to investigate the EM practices around the tax rate cut following the Tunisian tax reform of 2021. Evidence of EM is examined by focusing on both accounting and real EM. From a sample of 61 Tunisian public offering companies, observed from July 1, 2015 to June 30, 2021, the results estimated from the system GMM model argue that this tax rate reduction constitutes a real incentive to shift income from the period of higher tax rate (2020) towards the period of lower tax rate (2021) achieving significant savings for corporations. Furthermore, the results show that Tunisian firms have both accounting and real EM downward in the second half of 2020, and that the former is sharper. For the first half of 2021, the results show a joint use of accruals management and real management upwards, and that the latter is broader. These findings may be useful to tax policy-makers in the application of tax rules put in place to counter aggressive tax evasion. In addition, external auditors and tax auditors should consider the period around the change in the corporation tax rate to be more suspect.

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    • Table 1. Descriptive statistics
    • Table 2. Pearson’s correlation matrix
    • Table 3. Differences between earnings management means
    • Table 4. Model (M1) estimate results
    • Table 5. Model (M2) estimate results
    • Conceptualization
      Riadh Garfatta, Elmoez Zaabi
    • Project administration
      Riadh Garfatta
    • Supervision
      Riadh Garfatta, Elmoez Zaabi
    • Validation
      Riadh Garfatta, Imen Zorgati, Elmoez Zaabi
    • Visualization
      Riadh Garfatta
    • Writing – original draft
      Riadh Garfatta
    • Writing – review & editing
      Riadh Garfatta
    • Data curation
      Imen Zorgati, Elmoez Zaabi
    • Formal Analysis
      Imen Zorgati
    • Investigation
      Imen Zorgati
    • Methodology
      Imen Zorgati, Elmoez Zaabi
    • Software
      Imen Zorgati
    • Resources
      Elmoez Zaabi