earningsmngmtcta

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Earnings Management and Corporate Tax Shelters Mihir A. Desai Harvard University and NBER [email protected] Dhammika Dharmapala University of Connecticut and University of Michigan [email protected] Abstract This paper reviews recent evidence analyzing the link between earnings management and corporate tax avoidance. A real-world tax shelter is dissected to illustrate how tax shelter products enable managers to manipulate reported earnings. A stylized example is developed that generalizes this view of corporate tax avoidance and empirical evidence consistent with this view is also discussed. The paper concludes by considering the implications of this view for how shareholders and boards should view managerial efforts to reduce corporate tax obligations. Keywords: Earnings management; Tax avoidance; Tax shelters JEL Codes: G30; H25; H26; J33

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