Manajemen Penghasilan: Bukti Baru

Berdasarkan Beban Pajak Tangguhan

John Phillips University of Connecticut
Morton Pincus * Universitas Iowa
Sonja Olhoft Rego Universitas Iowa
14 Oktober 2002 (Versi sebelumnya: Juni 2002; Juli 2001)
* Penulis yang sesuai: Morton Pincus, Tippie College Bisnis, Universitas Iowa, 108 PBB, Iowa
City, IA 52242-1000, (319) 335-0910, morton-pincus@uiowa.edu.
Para penulis menghargai komentar dari dua wasit anonim, Ray Ball, Dan Collins, Dan Dhaliwal,
Mary Margaret Frank, Michelle Hanlon, Bruce Johnson, Bin Ke, Dawn Matsumoto, Lil Mills,
Maria Nondorf, Kathy Petroni, Scott Richardson, Bill Schwartz, Terry Shevlin, D. Shores,
peserta lokakarya pada pertemuan tahunan Asosiasi Akuntan Amerika 2002, Boston Area
Research Colloquium, Universitas Chicago, Universitas Columbia, Universitas Connecticut,
Konferensi Pajak Universitas Illinois, Universitas Iowa, Negara Bagian Michigan Universitas,
Universitas Waterloo, Universitas Washington, dan Universitas Washington, dan bantuan
pemrograman Paul Hribar dan Hong Xie. Akhirnya, penulis mengucapkan terima kasih atas
kontribusi Thomson Financial untuk menyediakan data perkiraan laba, tersedia melalui Sistem
Perkiraan Broker Institusional, sebagai bagian dari program akademis yang luas untuk
mendorong penelitian harapan laba.
Manajemen Laba: Bukti Baru Berdasarkan Beban Pajak Ditangguhkan
ABSTRAK: Kami memeriksa kegunaan dari beban pajak tangguhan dibandingkan dengan
berbagai
ukuran akrual yang digunakan dalam penelitian sebelumnya dalam mendeteksi manajemen laba
dalam tiga pengaturan di
mana manajemen laba mungkin terjadi. Motivasi untuk menggunakan beban pajak tangguhan
untuk
mendeteksi manajemen laba adalah bahwa biasanya ada lebih banyak kebijaksanaan di
bawahberlaku
prinsip-prinsip akuntansi yangumum daripada di bawah peraturan pajak, dan kami berasumsi
bahwa manajer mengeksploitasi kebijaksanaan tersebut
untuk mengelola pendapatan ke atas terutama dengan cara-cara yang tidak mempengaruhi
penghasilan kena pajak saat ini . Dengan demikian,
kami berharap bahwa keputusan untuk mengelola pendapatan ke atas akan menghasilkan
perbedaan pajak buku yang
meningkatkan beban pajak tangguhan.
Hasil kami memberikan bukti kegunaan tambahan dari biaya pajak tangguhan dalam
mendeteksi kegiatan manajemen laba vis-à-vis total akrual dan akrual abnormal yang berasal
dari dua versi model Jones. Beban pajak tangguhan umumnya secara bertahap berguna di
luar ketiga ukuran berbasis akrual berkaitan dengan mendeteksi manajemen laba untuk
menghindari
penurunan pendapatan dan berkaitan dengan mendeteksi manajemen laba untuk menghindari
kerugian.dengan
Berkenaan memenuhi perkiraan pendapatan analis, hanya total akrual adalah secara bertahap
berguna dalam
mendeteksi manajemen laba. Kami juga menemukan bahwa biaya pajak tangguhan secara
signifikan lebih
akurat daripada ukuran-ukuran akrual dalam mengklasifikasikan perusahaan-tahun sebagai
berhasil menghindari
kerugian, sedangkan tidak ada satu ukuran relatif lebih akurat daripada yang lain dalam
mengklasifikasikan perusahaan-tahun
sebagai berhasil menghindari penurunan penghasilan atau memenuhi perkiraan analis.
Kata kunci: manajemen laba; beban pajak tangguhan; akrual.
Ketersediaan Data: Semua data yang digunakan dalam penelitian ini berasal dari sumber yang
tersedia untuk umum.
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Manajemen Laba: Bukti Baru Berdasarkan Beban Pajak Tangguhan
I. PENDAHULUAN
Dalam makalah ini kami mengusulkan dan mengevaluasi penggunaan beban pajak penghasilan
tangguhan sebagai metrik
untuk mendeteksi manajemen laba. Berdasarkan bukti manajemen laba di
Burgstahler dan Dichev (1997) dan Mills and Newberry (2001), kami menyelidiki kegunaan dari
biaya pajak tangguhan dalam mengidentifikasi manajemen laba untuk memenuhi tiga target
pendapatan: (1) untuk
menghindari pelaporan penurunan pendapatan, (2) untuk menghindari pelaporan kerugian, dan
(3) untuk menghindari gagal memenuhi
ramalan pendapatan analis. Mendeteksi manajemen laba penting dalam menilai
kualitas penghasilan, dan harus berguna bagi peneliti yang mempelajari perilaku manajemen laba
dan analis keuangan dalam pemeriksaan laporan keuangan mereka. Selain itu, bukti bahwabuku
pendapatandikelola dengan cara yang tidak mempengaruhi penghasilan kena pajak berkontribusi
pada perdebatan mengenai
apakah pendapatan buku harus menjadi dasar untuk perpajakan (Yin 2001; Manzon dan Plesko
2002) .1
Penelitian sebelumnya telah berusaha untuk mendeteksi manajemen laba dengan menggunakan
berbagaiakrual
ukuransebagai proksi untuk kebijaksanaan manajerial. Namun, Guay dkk. (1996) menunjukkan
bahwa
akrual yang berasal dari lima model alternatif mencerminkan ketidaktepatan yang cukup besar,
dan Bernard dan
Skinner (1996) berpendapat bahwa akrual abnormal diperkirakan menggunakan model tipe Jones
mencerminkan
kesalahan pengukuran karena sebagian kesalahan sistematis dari akrual normal sebagaiabnormal
akrual.
Kami mengambil kebijaksanaan yang berbeda dan berpendapat bahwa kesalahan pengukuran
dalam metrik akrual yang digunakan untuk
mendeteksi manajemen laba dapat dikurangi dengan berfokus pada beban pajak tangguhan,
bukan
1

Mendasarkan pajak penghasilan pada pendapatan buku daripada pendapatan kena pajak akan mengurangi tingkat
kompleksitas aturan pajak penghasilan , dan akan berarti manipulasi laba buku akan menyebabkan biaya pajak.
Selain itu, pendapatan buku berbasis akrual harus memberikan wawasan yang lebih jelas ke dalam kegiatan ekonomi
yang mendasari perusahaan. Slemrod (2002) berpendapat bahwa pendapatan secara inheren adalah konsep berbasis
akrual, tetapi lebih mudah untuk mengelola sistem pajak berdasarkan transaksi atau realisasi.
1
mencoba menguraikan akrual menjadi komponen normal dan abnormal. Beban pajak tangguhan
adalah komponen dari beban pajak penghasilan total perusahaan dan mencerminkan pengaruh
pajaktemporer
perbedaanantara laba buku (yaitu, pendapatan yang dilaporkan kepada pemegang saham dan
pengguna eksternal lainnya)
dan penghasilan kena pajak (yaitu, pendapatan yang dilaporkan kepada otoritas pajak) timbul
terutama dari akrual
untuk pendapatan dan pengeluaran barang-barang yang mempengaruhi baik buku dan
penghasilan kena pajak, tetapi dalam periode yang berbeda.
Kami mengklaim bahwa biaya pajak tangguhan dapat digunakan untuk mengukur pilihan
manajer yang lebih baik
berdasarkan prinsip-prinsip akuntansi yang diterima secara umum (GAAP) karenaperpajakan
undang-undang, secara umum, memungkinkan kurang kebijaksanaan dalam pilihan akuntansi
relatif terhadap kebijaksanaan yang ada di
bawah GAAP (Mills dan Newberry) 2001; Manzon dan Plesko 2002; Hanlon 2002; Joos dkk.
2002; Plesko 2002). Oleh karena itu, kami berharap bahwa manajer yang berusaha mengelola
pendapatan untuk mencapai
beberapa ambang (misalnya, untuk menghindari pelaporan penurunan penghasilan)
melakukannya dengan mengeksploitasilebih besar yang
kebijaksanaan yangmereka miliki untuk tujuan pelaporan keuangan vis-à-vis pelaporan pajak.
Selain itu, kami
berasumsi bahwa para manajer lebih suka mengelola pendapatan buku ke atas tanpa juga
meningkatkankena
penghasilanpajak. Dengan demikian, penerapan kebijaksanaan manajerial untuk mengelola
pendapatan ke atas harus menghasilkan
perbedaan buku-pajak sementara, dan karenanya beban pajak tangguhan akan berguna dalam
mendeteksi
manajemen laba tersebut.
Yang pasti, perusahaan dapat mengelola pendapatan buku tanpa menghasilkanbuku-pajak
sementara
perbedaan. Misalnya, manajer dapat mengelola penghasilan dengan terlibat dalam
serangkaianterbatas
transaksiyang menciptakan perbedaan buku-pajak permanen. Manajer juga dapat membuatakrual
keputusanatau mengambil tindakan yang mengubah arus kas operasi yang mempengaruhi kedua
buku dankena
penghasilanpajak secara bersamaan. Namun, tindakan terakhir ini meningkatkan hutang pajak
penghasilan saat ini,
dan jika manajer mengambil tindakan seperti itu, kita tidak akan mendeteksi manajemen laba
menggunakan pajak tangguhan
2

Ada kemungkinan bahwa strategi perencanaan pajak perusahaan dapat menurunkan pendapatan kena pajak tanpa
mempengaruhi pendapatan buku. Jika demikian, itu juga akan meningkatkan beban pajak tangguhan. Kami menilai
kemungkinan ini dalam analisis empiris tambahan kami.
2
biaya. Oleh karena itu, biaya pajak tangguhan tidak dapat menangkap semua aktivitas
manajemen laba, dan
ini merupakan pertanyaan empiris apakah biaya pajak tangguhan berguna untuk mendeteksilaba
di
manajemenluar berbagai ukuran akrual yang telah digunakan dalam penelitian sebelumnya.
Kami menganalisis tiga pengaturan di mana literatur berpendapat manajemen laba mungkin
terjadi. Kasus pertama yang kami pertimbangkan adalah manajemen laba untuk menghindari
penurunan penghasilan. Kami
membandingkan perusahaan-tahun dengan nol atau sedikit perubahan skala laba positif untuk
"hanya kehilangan" perusahaan-
tahun (yaitu, perusahaan-tahun dengan sedikit perubahan laba negatif). Hasilnya menunjukkan
bahwa
kenaikan beban pajak tangguhan meningkatkan kemungkinan mengelola laba untuk menghindari
pelaporan penurunan pendapatan, mendukung argumen bahwa beban pajak tangguhan secara
bertahap
berguna dalam mendeteksi manajemen laba. Total akrual dan akrual abnormal diperkirakan
menggunakan
model Jones ke depan (Dechow et al. 2002) juga secara bertahap berguna, sedangkan
akrual abnormal berasal dari model Jones yang dimodifikasi tidak. Kami tidak menemukan bukti
bahwa salah
satu metrik lebih akurat mengklasifikasikan perusahaan-tahun sebagai berhasil (atau tidak
berhasil) menghindari
penurunan penghasilan. Ketika kami memeriksa dampak kinerja perusahaan pada hasil, kami
menemukan bahwa
langkah-langkah akrual tidak lagi signifikan, sedangkan hasil beban pajak tangguhan masih
berlaku.
Kasus kedua yang kami teliti adalah manajemen laba untuk menghindari kerugian, dan kami
membandingkan
perusahaan-tahun dengan tingkat laba skala nol atau sedikit positif dengan sampel kontrol
perusahaan-
tahun dengan laba sedikit negatif. Hasilnya menunjukkan bahwa peningkatan beban pajak
tangguhan
meningkatkan kemungkinan mengelola pendapatan untuk menghindari pelaporan kerugian.
Dengan demikian beban pajak tangguhan
juga secara bertahap berguna dalam mendeteksi manajemen laba dalam pengaturan ini, seperti
juga
metrik akrual. Namun, kami menemukan bahwa biaya pajak tangguhan relatif lebih akurat
daripada
masing-masing ukuran akrual dalam mengklasifikasikan perusahaan-tahun sebagai berhasil (atau
tidak berhasil)
menghindari kerugian.
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Akhirnya, kami menyelidiki kegunaan dari biaya pajak tangguhan dalam mendeteksilaba
manajemenuntuk menghindari gagal memenuhi atau mengalahkan perkiraan pendapatan analis
konsensus.
Literaturberpendapat bahwa perusahaan mengelola laba atas dalam pengaturan ini, meskipun
bukti yang
mendukung hasil ini dicampur (misalnya, Schwartz 2001; Burgstahler dan Eames 2002;.
Dhaliwal et
al,2002). Kami tidak menemukan bukti bahwa biaya pajak tangguhan atau metrik akrual yang
abnormal mendeteksi
manajemen laba untuk menghindari kegagalan memenuhi atau mengalahkan perkiraan
pendapatan analis, sedangkan total
akrual berhubungan positif dengan probabilitas bahwa perusahaan mengelola pendapatan dalam
pengaturan ini.
Namun, tidak ada metrik berbasis akrual atau biaya pajak tangguhan yang lebih akurat
mengklasifikasikan
perusahaan-tahun sebagai berhasil (atau tidak berhasil) menghindari gagal memenuhi atau
mengalahkan perkiraan analis.
Secara keseluruhan, hasil kami mendukung kegunaan tambahan dari biaya pajak tangguhan
sebagai metrik
untuk mendeteksi manajemen laba. Anehnya, kami menemukan bahwa total akrual secara
bertahap berguna
dalam mendeteksi aktivitas manajemen laba untuk masing-masing dari tiga target penghasilan
kami, sementara
pengukuran akrual yang abnormal kurang konsisten. Dengan demikian, peneliti harus
mempertimbangkan
memasukkan beban pajak tangguhan ke dalam desain penelitian mereka untuk lebih sepenuhnya
mendeteksi efek
manajemen laba daripada hanya mengandalkan proksi berbasis akrual dari kebijaksanaan
manajerial.
Pada bagian berikutnya kami mengembangkan intuisi yang mendasari hipotesis kami yang dapat
diuji,
meringkas penelitian sebelumnya yang relevan, dan memberikan latar belakang kelembagaan
tentang akuntansi untuk
perbedaan buku-pajak. Bagian III menggambarkan desain dan data empiris. Bagian IV
menyajikan
hasil empiris utama kami dan analisis tambahan. Kami menyimpulkan dalam bagian V.
II. LATAR BELAKANG DAN PENGEMBANGAN HIPOTESIS
Manajemen Laba, Diskresi, Akrual, dan Perbedaan Buku-Pajak
Manajemen laba dicapai melalui kebijaksanaan manajerial atasakuntansi
pilihandan arus kas operasi. Kebijaksanaan atas akrual umumnya kurang dapat diamati daripada
pilihan manajemen metode akuntansi dan lebih murah untuk menerapkan daripada mengubah
4
arus kas operasi. Dengan demikian, peneliti semakin menggunakan variabel akrual untuk
mendeteksi
manajemen laba. Sebagai contoh, Healy (1985) menggunakan total akrual untuk proksi untuk
"discretionary" (yaitu, "abnormal") akrual sementara Jones (1991) memperkirakan regresi total
akrual pada faktor-faktor yang mencerminkan perubahan dalam lingkungan ekonomi perusahaan
untuk mendeteksilaba
manajemen, dan penggunaan residual untuk proksi untuk akrual abnormal.3, 4 Dechow et al.
(1995)
memodifikasi model Jones untuk memungkinkan kemungkinan bahwa manajer menggunakan
kebijaksanaan untuk memperoleh
pendapatan ketika dipertanyakan apakah kriteria pengakuan pendapatan telah dipenuhi.
Dechow dkk. (1995) juga menilai kemampuan dari lima model akrual untuk mendeteksilaba
manajemendan menemukan bahwa model Jones yang dimodifikasi adalah yang paling kuat
dalam mendeteksilaba
manajemendalam sampel perusahaan yang diidentifikasi SEC untuk melebih-lebihkan
penghasilan. Bukti dalam
Guay et al. (1996) menyatakan bahwa hanya Jones dan model Jones yang dimodifikasi
menghasilkanabnormal
akrualyang dapat dibedakan dari dekomposisi acak dari penghasilan dan dengan demikian
konsisten
dengan akrual abnormal yang dihasilkan dari keputusan manajerial untuk meningkatkan dan /
atau mengurangi pendapatan.
Selain itu, Bernard dan Skinner (1996) berpendapat bahwa model Jones-jenis akrual abnormal
sistematis misclassify akrual normal sebagai abnormal. Dengan demikian, bukti saat ini
menunjukkan bahwa
variabel akrual buruk mengukur manajer kebijaksanaan latihan untuk mengelola pendapatan.
Kami berpendapat bahwa waktu (yaitu, sementara) perbedaan buku-pajak akan membantu
kebijaksanaan yang terpisah
dalam tindakan manajer dari pilihan nondiscretionary. Seperti Plesko (2002, 112) mencatat,
"waktu
perbedaandapat timbul dari aturan pelaporan yang berbeda di bawah masing-masing sistem,
tetapi juga karena GAAP
memungkinkan manajer kebijaksanaan yang lebih besar dalam menentukan jumlah pendapatan
dan biaya dalam setiap
periode daripada sistem pajak." , GAAP memungkinkan fleksibilitas dalam memperkirakan
3

DeAngelo (1986) menggunakan perubahan dalam total akrual, yang secara implisit mengasumsikan bahwa akrual
“normal” konstan dari waktu ke waktu sehingga perubahan akrual mencerminkan akrual abnormal. Dechow (1994)
menunjukkan bahwa total akrual adalah reversi rata-rata; karenanya, bagian dari perubahan total akrual diharapkan.
4
DeFond dan Jiambalvo (1994) menyelidiki hubungan antara pembatasan perjanjian hutang dan pilihan akrual dan
melaporkan hasil yang konsisten menggunakan versi time-series dan cross-sectional dari model Jones.
5
ketentuan untuk kredit macet sementara peraturan pajak memungkinkan pengurangan hanya
untuk piutang yang benar-benar
dihapus.5 Demikian pula, ada lebih banyak kebijaksanaan dalam memilih masa manfaat untuk
depresiasi berdasarkan
GAAP dibandingkan dengan fleksibilitas terbatas untuk menentukan periode pemulihan biaya
aset untukpajak
tujuan. Ada juga lebih banyak kebijaksanaan atas pengakuan pendapatan GAAP.
Sementarapendapatan perusahaan
metode pengakuanmungkin awalnya sama untuk tujuan pajak dan buku, perusahaan yang
kemudian
berubah menjadi metode yang lebih agresif untuk pelaporan keuangan harus melanjutkan
denganpajak awal mereka
metodekecuali izin untuk mengubah diminta dan disetujui oleh IRS. Ada juga
kebijaksanaan mengenai kapan harus mengakui pendapatan yang tidak ditagih sebagai
pendapatan untuk keperluan buku, sedangkan untukpajak
perusahaanumumnya harus mengakui pembayaran di muka sebagai pendapatan saat diterima.
Lebih
umum, akrual yang memerlukan estimasi manajer seperti manfaat pasca pensiun,
restrukturisasi, jaminan, dan cadangan asuransi diri menghasilkan perbedaan pajak buku
sementara.
Sebaliknya, akrual seperti itu untuk piutang, hutang gaji, dan hutang
yang boleh dibilang tunduk pada kebijaksanaan manajerial yang kurang biasanya tidak
menghasilkanbuku-sementara.6
perbedaanpajak
Selain memiliki kebijaksanaan yang lebih besar untuk GAAP daripada untuk tujuan pajak, kami
juga berasumsi
bahwa perusahaan yang berusaha mengelola pendapatan buku lebih suka melakukannya tanpa
meningkatkanpajak mereka
biaya. Asumsi ini, yang analog dengan asumsi bahwa lebih murah bagi manajer
untuk mengelola pendapatan melalui akrual daripada arus kas operasi, berlaku baik untuk
perusahaan-perusahaan yang menghadapi
tarif pajak penghasilan marjinal positif saat ini dan untuk perusahaan dengan nolmarjinal saat ini
pajakmenilai. Perusahaan di kelompok sebelumnya memiliki insentif pajak saat ini untuk
meningkatkan pendapatan buku dengan cara
yang tidak meningkatkan beban pajak saat ini, sementara perusahaan dalam kelompok terakhir
yang tidak memiliki
5

GAAP memungkinkan untuk kemungkinan peningkatan pendapatan dengan mengelola ketentuan untuk akun tak
tertagih . Hal ini menghasilkan aset pajak tangguhan yang lebih kecil daripada yang dilaporkan, dan dengan
demikian biaya pajak tangguhan yang lebih besar. 6
Perusahaan dengan kebijakan pengakuan pendapatan yang berbeda untuk tujuan buku dan pajak mungkin memiliki
perbedaan pajak buku yang dihasilkan dari piutang. Juga, akrual untuk kompensasi yang ditangguhkan (misalnya,
kompensasi yang dibayarkan di luar dua setengah bulan pada akhir tahun) juga akan menghasilkan perbedaan buku-
pajak.
6
jumlah yang tidak terbatas dari kerugian carryforwards juga dapat berusaha untuk meminimalkan
nilai sekarang darimereka
pajak penghasilan.
Dengan demikian kami berpendapat bahwa perbedaan buku-pajak yang dihasilkan dari akrual
yang tidak meningkatkan
penghasilan kena pajak saat ini akan membantu kebijaksanaan terpisah dari non-diskresi.
Penelitian sebelumnya telah
menghubungkan perbedaan buku-pajak dengan aktivitas manajemen laba. Mills dan Newberry
(2001)
menyajikan bukti bahwa perusahaan dengan insentif manajemen laba memiliki perbedaan yang
lebih besar
antara buku dan pendapatan kena pajak. Khususnya,publik (versus swasta),
perusahaan-perusahaanperusahaan-perusahaan yang dipegang oleh swasta, dan perusahaan-
perusahaan yang secara keuangan tertekan secara pribadi semuanya memilikipajak buku yang
lebih besar
perbedaan. Berdasarkan hasil yang belum dianalisa, mereka mencatat bahwa perusahaan yang
melaporkan sedikitlaba positif
perubahanmemiliki perbedaan pajak buku yang lebih besar daripada perusahaan dengan
perubahan laba yang sedikit negatif.
Sementara Mills dan Newberry (2001) mengamati perbedaan buku pajak yang sebenarnya
menggunakanpajak rahasia
data pengembalian, kami menggunakan biaya pajak tangguhan, ukuran yang tersedia untuk
umum, sebagai pengganti empiris kami
untuk perbedaan buku-pajak dan menyelidiki perilaku manajemen laba perusahaan yang
diperdagangkan secara publik .
Kami juga memperluas Mills dan Newberry (2001) dengan membandingkan kemampuan biaya
pajak tangguhan
dan metrik berbasis akrual yang digunakan dalam penelitian sebelumnya untuk mendeteksi
aktivitas manajemen laba.
Beban pajak tangguhan, proksi kami untuk perbedaan buku-pajak, dihitung sesuai dengan
Pernyataan Standar Akuntansi Keuangan (PSAK) No. 109, yang mengambilneraca
pendekatanuntuk menghitung pajak tangguhan (FASB 1992). Dengan demikian kami fokus pada
periode 1994-2000
selama SFAS No. 109 telah berlaku, sementara Mills dan Newberry (2001) mencakup
periode 1981-1996. PSAK No. 109 mendefinisikan perbedaan temporer sebagai perbedaan
antara
akuntansi keuangan dan basis pajak aset dan kewajiban yang diperkirakan akan berbalik di
masa depan, sedangkan perbedaan permanen tidak akan. Perbedaan temporer dapat menciptakan
tangguhan pajak
tangguhan atau aset pajak tangguhan. Peningkatan kewajiban pajak tangguhan konsisten dengan
perusahaan yang
saat ini mengakui pendapatan dan / atau menangguhkan biaya untuk keperluan buku relatif
terhadappajak
7
pelaporan, yang menghasilkan jumlah kena pajak di masa depan. Atau, aset pajak tangguhan
meningkat karena
perusahaan saat ini mengakui biaya dan / atau menunda pendapatan untuk buku vis-à-vis
keperluan pajak, sehingga
menghasilkan jumlah dikurangkan di masa depan. Semua hal lain tetap sama, perusahaan
melaporkan pendapatan buku sebelum pajak lebih tinggi
dari penghasilan kena pajak ketika mereka memiliki peningkatan kewajiban pajak tangguhan
bersih mereka (didefinisikan sebagai
perubahan dalam kewajiban pajak tangguhan kurang perubahan aktiva pajak tangguhan), dan
wakil versa.7
Menurut PSAK 109, kenaikan (penurunan) kewajiban pajak tangguhan bersih untuk suatu
periode dapat
sama dengan biaya (manfaat) pajak tangguhan perusahaan untuk periode tersebut, tetapi
perbedaannya adalah umum.
Perbedaan biasanya terjadi ketika perusahaan terlibat dalam merger, akuisisi, dan divestasi, atau
melaporkan item pendapatan komprehensif lainnya, dan dapat mempengaruhi rekening pajak
tangguhan pada neraca
tanpa mempengaruhi beban pajak tangguhan pada laporan laba rugi. Kami fokus pada beban
pajak
tangguhan sebagai pengganti empiris kami untuk perbedaan buku-pajak karena
mencerminkanbukutemporer yang
perbedaanpajakterkait dengan laporan
labaAmbang Pendapatan
rugi.8Burgstahler dan Dichev (1997) berhipotesis bahwa manajer memiliki insentif yang kuat
untuk menghindari
pelaporan penurunan penghasilan dan untuk menghindari melaporkan kerugian. Mereka
memberikan buktilaba
manajemendengan mendokumentasikan frekuensi yang lebih tinggi dari nol atau peningkatan
kecil dalam penghasilan dari
7
PSAK No. 109 memberikan pengakuan penuh terhadap aset pajak tangguhan. Namun, jika "lebih mungkin
daripada tidak" bahwa pajak tangguhan 8
Aktiva yang ditangguhkan akan dikenakan pajak bukan biaya yang akan direalisasikan, itu sendiri dapat
dibayangkan kemudian suatu perusahaan harus dapat memberikan dekomposisi valuasi penyisihan lebih lanjut ke
dalam normal untuk diimbangi dan itu (FASB abnormal 1992, komponen, ¶17e).
tetapi ini membutuhkan model determinan biaya pajak tangguhan tanpa manajemen laba, yang kita tinggalkan untuk
 penelitian masa depan. Absen model seperti itu, mungkin tampak bahwa perubahan dalam biaya pajak tangguhan
akan menjadi proxy yang masuk akal; Namun, itu tidak memiliki interpretasi yang langsung. Secara khusus, DTE t
- DTE
t-1

=
NDTL t
- 2NDTL
t-1
+ NDTL
t-2

, di mana DTE = biaya pajak tangguhan, dan NDTL = kewajiban pajak tangguhan
neto = tangguhan pajak tangguhan - aset pajak tangguhan. Berdasarkan PSAK No. 109, DTE adalah variabel
perubahan yang berasal dari perubahan dalam neraca akun, dan tidak mungkin mengikuti jalan acak. Jika manajer
terlibat dalam manajemen laba untuk meningkatkan laba tetapi tidak pendapatan kena pajak, maka terlepas dari
bagaimana target didefinisikan (misalnya, laba tahun lalu), manajemen laba tersebut menghasilkan perbedaan buku-
pajak yang menghasilkan DTE yang lebih tinggi daripada yang akan diamati dalam tidak ada kegiatan semacam itu.
Jadi, tingkat DTE, bukan perubahan DTE, adalah variabel yang sesuai.
8
diharapkan dalam distribusi cross-sectional dari perubahan pendapatan berskala tahunan.9
Mereka menemukansama
hasil yanguntuk tingkat laba nol dan sedikit positif.
Gambar 1 menunjukkan replikasi kami dari hasil Burgstahler dan Dichev (1997) tentang
perubahan pendapatan berskala. Jumlah pengamatan yang sangat tinggi dalamnol dan sedikit
intervalperubahan pendapatan positif dan frekuensi pengamatan yang sangat rendah dalamsedikit
interval perubahan pendapatan yangnegatif konsisten dengan temuan mereka. Kami
mereplikasiBurgstahler
tingkat hasil pendapatan yang dibebanidan Dichev pada Gambar 2. Sekali lagi, konsisten dengan
temuan mereka,
ada frekuensi pengamatan yang sangat tinggi dalamlaba nol dan sedikit positif
intervaldibandingkan dengan interval pendapatan yang sedikit negatif.
[Masukkan Gambar 1 dan Gambar 2 di sini]
Kami menilai kegunaan dari biaya pajak tangguhan, proksi empiris kami untukbuku-pajak
perbedaanyang mencerminkan kebijaksanaan manajerial, untuk mendeteksi manajemen laba di
luarakrual
ukuranyang digunakan dalam penelitian sebelumnya dengan menyelidiki apakah variabel-
variabel ini mendeteksilaba
manajemendalam pengaturan Burgstahler dan Dichev (1997) mempertimbangkan, yaitu, untuk
menghindari pelaporan
penurunan penghasilan dan untuk menghindari melaporkan kerugian. Oleh karena itu, kami
menguji hipotesis berikut:
H1: Beban pajak tangguhan secara bertahap berguna untuk tindakan akrual dalam mendeteksi
manajemen laba untuk menghindari penurunan pendapatan.
H2: Beban pajak tangguhan secara bertahap berguna untuk tindakan akrual dalam mendeteksi
manajemen laba untuk menghindari kerugian.
Manajer juga memiliki insentif untuk menghindari kegagalan memenuhi atau
mengalahkanpendapatan
perkiraananalis. Misalnya, Bartov dkk. (2002) dan Kasznik dan McNichols (2002) menemukan
bahwa
9

Beberapa makalah menyelidiki insentif berbasis pasar modal untuk melaporkan peningkatan laba. Barth dkk.
(1999) menemukan bahwa perusahaan dengan periode berkelanjutan nol atau perubahan laba positif memiliki rasio
harga-laba lebih tinggi daripada perusahaan yang tidak mampu mempertahankan pertumbuhan laba. Lebih lanjut,
beberapa pendapatan-laba meningkat secara monoton untuk setiap tahun berturut-turut, sebuah perusahaan
melaporkan pendapatan yang menurun tetapi menghilang setelah dua tahun laba menurun. Penelitian lain (Beatty et
al. 2000; Myers dan Skinner 2001; Bartov et al. 2002) juga mendukung insentif berbasis pasar modal ini, dan
konsisten dengan Barth et al. (1999) insentif untuk melaporkan peningkatan laba meningkat dalam peluang
pertumbuhan perusahaan (Skinner dan Sloan 2002).
9
penghargaan pasar perusahaan yang memenuhi atau mengalahkan perkiraan analis. Gambar 3
menampilkananalis rata-rata
kesalahan prediksi labasebesar satu sen per interval pembagian. Konsisten dengan Burgstahler
dan Eames
(2002), ada frekuensi yang lebih tinggi tajam dari perusahaan-tahun dalam nol dan satu sen per
berbagi
perkiraan kesalahan interval dibandingkan dengan frekuensi dalam satu sen per interval persen
negatif.
Dengan demikian, kami mempertimbangkan pertemuan atau pemukulan perkiraan analis sebagai
pengaturan manajemen laba ketiga
(Degeorge et al. 1999) dan berhipotesis sebagai berikut:
H3: Beban pajak tangguhan secara bertahap berguna untuk langkah-langkah akrual dalam
mendeteksi manajemen laba untuk menghindari gagal memenuhi atau mengalahkan ramalan laba
analis.
[Masukkan Gambar 3 di sini]
Burgstahler dan Eames (2002) menemukan bahwa perusahaan dengananalis nol atau sedikit
positif
kesalahan perkiraanmemiliki akrual abnormal yang lebih tinggi, dihitung menggunakan Jones
(1991) model.
Schwartz (2001) menganggap pengaturan yang sama dan memeriksa manajemen laba
danpenghasilan yang
bimbingandiberikan oleh manajer. Dia melaporkan sedikit bukti manajemen laba, tetapi
menunjukkan bahwa
manajer membimbing perkiraan pendapatan analis. Tidak seperti menghindari kerugian atau
penurunan penghasilan di
mana ambang batas tetap (misalnya, nol atau laba tahun lalu), manajer dapat memberikan
bimbingan kepada
analis untuk mendorong mereka untuk menurunkan perkiraan mereka sebelum pengumuman
laba perusahaan (misalnya,
Schwartz 2001; Matsumoto 2002 ). Ini mempersulit analisis kami mengukur kegunaan
metrik alternatif dalam mendeteksi manajemen laba dalam pengaturan perkiraan analis. Namun,
tidak ada konsensus dalam literatur tentang bagaimana mengukur panduan manajerial (misalnya,
Schwartz 2001), dan kami tidak mengendalikan dampak bimbingan. Dengan demikian
pemeriksaan
manajemen laba kami untuk memenuhi atau mengalahkan perkiraan analis terbatas dan
eksploratif. 10
10

Dhaliwal dkk. (2002) mendokumentasikan manajemen laba untuk memenuhi prakiraan analis dengan memeriksa
akrual tertentu, yaitu total biaya pajak. Mereka berhipotesis bahwa perkiraan manajer akrual terakhir dan auditor
mendukung adalah biaya pajak, yang terjadi tepat sebelum perusahaan mengumumkan pendapatan tahunan mereka.
Mengelola total biaya pajak, menurut mereka, merupakan upaya terakhir untuk manajemen laba. Dalam pengaturan
ini, setiap panduan analis akan sudah terjadi dan dengan demikian tidak akan mengacaukan analisis mereka.
10
III. DESAIN EMPIRIS Desain
Penelitian
Analisis empiris utama kami menilai kemampuan tambahan dari beban pajak tangguhan dan
berbagai tindakan akrual untuk mendeteksi manajemen laba. Kami mempertimbangkan tiga
situasi di mana
manajemen laba mungkin hadir: perusahaan-tahun dengan nol atau sedikitlaba positif
perubahan, perusahaan-tahun dengan tingkat laba nol atau sedikit positif, dan perusahaan-tahun
di mana pendapatan
persis sama atau sedikit melebihi perkiraan analis.
Untuk menyelidiki manajemen laba untuk menghindari penurunan penghasilan, kami
memperkirakan
model cross-sectional gabungan berikut menggunakan regresi probit:
EM it

+=
βα 1
DTE it + β 2 AC it ∆ + β 3 CFO itu Σ + β jj Ind it + ε itu (1) di

mana
EM it

= 1 jika perubahan laba bersih perusahaan saya (data Compustat tahunan item # 172) dari tahun
t-1 hingga t dibagi dengan nilai pasar ekuitas pada akhir tahun t-2 (tahunan Compustat item data
# 25 × # 199) adalah ≥ 0 dan <0,01, dan 0 sebaliknya;
DTE itu
= biaya pajak tangguhan perusahaan i (data tahunan Compustat item # 50) pada tahun t,
ditingkatkan dengan total aset pada akhir tahun t-1;
AC itu

= ukuran akrual perusahaan i (lihat di bawah) di tahun t;

∆ CFO itu
= perubahan dalam arus kas perusahaan i dari operasi berkelanjutan (item data Compustat
tahunan # 308 - # 124) dari tahun t-1 hingga t, yang diukur dengan total aset pada akhir tahun t-
1;
Σj

Ind it = 1 (0) jika perusahaan i adalah (tidak) dalam industri j di tahun t, berdasarkan kode SIC 2-
digit;
ε it
= istilah kesalahan.
Mengikuti Burgstahler dan Dichev (1997),
EM itu

sama dengan 1 (0) jika laporan perusahaan saya (tidak

11
laporan) perubahan laba skala di tahun t lebih besar dari atau sama dengan nol dan kurang dari
0,01 dari
awal-tahun t -1 nilai pasar ekuitas. 11
DTE
adalah komponen yang ditangguhkan dari total
beban pajak perusahaan, yang diukur dari total aset awal tahun-nya. Kami memprediksi koefisien
pada
DTE
dalam persamaan (1) akan positif dan signifikan, menunjukkan bahwa probabilitaslaba
manajemenuntuk menghindari pelaporan penurunan laba meningkat dengan beban pajak
tangguhan skalanya.
AC itu

merupakan salah satu dari tiga variabel akrual (dibahas di bawah) yang digunakan untuk
mendeteksilaba
manajemen, dan kami berharap untuk memiliki koefisien positif di hadapanlaba
manajemenuntuk menghindari penurunan laba. Termasuk
DTE
dan
AC

dalam model memungkinkan

kita untuk menentukan kegunaan tambahan dari setiap ukuran dalam mendeteksi manajemen
laba.
Secara khusus, kami menafsirkan koefisien positif pada
DTE itu
(
AC itu

) sebagai bukti bahwa itu secara

bertahap berguna untuk
AC itu

(
DTE itu
) dalam mendeteksi manajemen laba. Kami juga menyertakan
∆ CFO
untuk mengontrol efeknya bahwa perubahan arus kas dari operasi yang berkelanjutan memiliki
status perusahaan sebagai perusahaan manajemen laba. Peningkatan arus kas operasi
mencerminkan peningkatan
dalam kinerja saat ini dan mengurangi kebutuhan untuk mengelola pendapatan untuk
mencapainol atau sedikit
perubahan labapositif. Akhirnya, kami menyertakan 2-digit variabel dummy industri SIC untuk
mengendalikan
kemungkinan perbedaan dalam kecenderungan untuk memenuhi atau mengalahkan target
pendapatan di industri.12
11

Burgstahler dan Dichev (1997) menggunakan tiga interval perubahan pendapatan berskala (0-0.005, 0-0.01 , 0-
0.015) dan tiga skala penghasilan skala skala (0-0.01, 0-0.02, 0-0.03) dalam analisis mereka. Kami menggunakan
salah satu dari tiga interval masing-masing untuk melakukan analisis empiris kami. 12
Kami mengukur perubahan laba berdasarkan nilai pasar ekuitas agar konsisten dengan Burgstahler dan Dichev
(1997), tetapi kami mengukur variabel lain berdasarkan total aset. Selain konsisten dengan penelitian sebelumnya
yang mengecilkan metrik akrual dengan total aset, kami memiliki kekhawatiran bahwa mengempis berdasarkan nilai
pasar akan meniadakan efek yang kami selidiki. Yaitu, karena investor menawar harga perusahaan yang melaporkan
kenaikan laba yang berurutan dan menghukum perusahaan yang melaporkan penurunan laba setelah periode
peningkatan pendapatan (Barth et al. 1999), maka semua perusahaan lain yang sama yang berhasil menghindari
penurunan pendapatan akan memiliki lebih tinggi nilai pasar daripada jika mereka melaporkan penurunan
pendapatan. Pada gilirannya, ini akan menghasilkan nilai yang lebih rendah dari variabel uji untuk perusahaan-
perusahaan ini, dan sebaliknya akan terjadi untuk perusahaan yang gagal untuk menghindari penurunan pendapatan.
Dengan demikian, perbedaan dalam variabel uji skala kami untuk sampel yang terlewatkan dan manajemen laba
akan diminimalkan, sehingga mengurangi kekuatan pengujian kami.
12
Berkenaan dengan pengaturan menghindari kerugian, konsisten dengan Dechow et al. (2002)
kami
membandingkan perusahaan-tahun dengan nol atau sedikit tingkat penghasilan skala positif
untuk perusahaan-tahun dengan
tingkat penghasilan skala sedikit negatif (yaitu, sampel kontrol yang tidak terjawab). Kami
memperkirakan persamaan
(1), model probit cross-sectional, setelah membuat dua perubahan. First,
EM it

equals 1 if firm i's

net income (annual Compustat data item #172) in year t divided by the market value of equity at
the end of year t-1 (annual Compustat data items #25 × #199) is at least zero and less than 0.02,
and 0 otherwise (Burgstahler and Dichev 1997). Second, we use the level of cash flows from
operations (CFO) to control for current performance in the earnings level analysis. We again
predict that the coefficient on
DTE it
will be positive and significant, indicating that the
likelihood of managing earnings to avoid reporting a loss increases with deferred tax expense.
We interpret a positive coefficient on DTE as providing evidence that DTE is incrementally
useful to the respective accrual-based measure in detecting earnings management in this setting.
Finally, to study the analysts' forecast setting we estimate equation (1) after redefining
EM
it

to equal 1 if firm i's year t analysts' earnings forecast error is zero or one cent per share,
and 0 if it is negative one cent. A positive and significant coefficient on DTE and/or on any of
the accrual metrics included in the model would indicate that the likelihood of meeting or
beating analysts' forecasts is increasing in DTE and/or the accrual metric and would provide
evidence of their incremental usefulness in detecting earnings management in this setting.
Accrual Models
We use total accruals (Healy 1985), modified Jones abnormal accruals (Dechow et al.
1995), and forward-looking abnormal accruals (Dechow et al. 2002) as proxies for accruals that
13
reflect earnings management. Total accruals is earnings from continuing operations minus cash
flows from continuing operations:13
TAcc it
= EBEI it − (
CFO it − EIDO it ) (2)
where
TAcc it
= firm i's total accruals in year t;
EBEI it
= firm i's income before extraordinary items (annual Compustat data item #123) in year t;
CFO it
= firm i's cash flows from operations (annual Compustat data item #308) in year t;
EIDO it
= firm i's extraordinary items and discontinued operations from the statement of cash flows
(annual Compustat data item #124) in year t.
We estimate two different cross-sectional models to derive abnormal accruals. The first
is the modified Jones model. Following Dechow et al. (2002), we have:
TAcc it
∆+=
βα 1
( Sales it +∆− AR it ) β 2 PPE it + ξ it (3)
where
∆ Sales it
= the change in firm i's sales (annual Compustat data item #12) from year t-1 to t;
∆ AR it

= the change in firm i's accounts receivable from operating activities from year t-1
to t (annual Compustat data item #302);
PPE it
= firm i's year t gross property, plant, and equipment (annual Compustat data item #7);
ξ it

= the error term.

We scale all variables by beginning-of-year total assets (annual Compustat data item #6).
Subtracting
∆ AR it

modifies the Jones (1991) model so that credit sales are assumed to be
discretionary. Under the assumption of no earnings management in the estimation sample
(Dechow et al. 1995), we exclude
∆ AR it

from equation (3) and estimate the model separately

13

Following Hribar and Collins (2002), we use data from the cash flow statement rather than from successive
balance sheets to estimate accrual measures.
14
using non-EM = 1 firm-years for each 2-digit SIC group-year with at least ten firms. We then
use the estimated parameters in equation (3) to compute abnormal accruals (denoted AbAccMJ).
We also estimate abnormal accruals using Dechow et al.'s (2002) forward-looking model:
TAcc it
∆+= βα 1
( Sales it +∆−− )1( ARk it ) β 2 PPE it + β 3 TAcc it − 1 + β 4 GR _ Sales t + 1 + ξ it (4)
where k = the slope coefficient from a regression of
∆ AR it

on
∆ Sales it
;
TAcc it
1− = firm i's total accruals from the prior year, scaled by year t-2 total assets;
GR _
Sales it
+1

= the change in firm i's sales from year t to t+1, scaled by year t sales;
ξ it

= the error term.

The forward-looking model includes three adjustments to the modified Jones model. First, rather
than assuming all credit sales are discretionary, the model treats part of the increase in credit
sales as expected (a normal accrual) by regressing
∆ AR it

on
∆ Sales it
and winsorizing the
estimated parameter k so it ranges from 0 to 1. Hence the change in sales in equation (4) is
reduced by less than 100% of the increase in receivables. Second, a portion of total accruals is
assumed to be predictable and captured by including last year's accruals (ie, lagged total
accruals) in the model. Third, the modified Jones model treats increases in inventory made in
anticipation of higher sales as an abnormal accrual reflecting earnings manipulation rather than
as a rational increase in inventory (eg, Hunt et al. 1996). Including future sales growth corrects
for such misclassifications, although it means the forward-looking model uses future period data
to estimate current period normal and abnormal accruals. Under the assumption of no earnings
management, we estimate the model by excluding
)1( ∆− ARk it
and using non-EM = 1 firm-years
for each 2-digit SIC group-year. We use the resulting parameter estimates in equation (4) to
compute abnormal accruals (denoted AbAccFL).
15
Samples
SFAS No. 109 became effective in 1993 and substantially altered GAAP for income tax
reporting. To assure consistent financial reporting, we only include firm-years for the period
1994-2000.14 We require sample firms to be incorporated in the US because foreign firms face
different financial accounting standards, tax rules, and incentives than US firms. We exclude
utilities (SIC codes 4900-4999) and financial institutions (SIC codes 6000-6099) because
regulated firms may have different incentives regarding earnings management than other
businesses,
15

and we exclude mutual funds (SIC code 6726), trusts (SIC code 6792), REITs (SIC
code 6798), limited partnerships (SIC code 6799), and other flow-through entities (SIC code
6795) since these firms do not account for income tax expense. A firm-year must have non-
missing data for the variables needed in the analysis. To control for extreme observations, we
delete firm-years having deferred tax expense below the 1st percentile or above the 99th
percentile. Consistent with Defond and Subramanyam (1998) and Dechow et al. (2002), we also
delete firm-years having a scaled accrual measure greater than 100% (in absolute value) of total
assets.
Following Mills and Newberry (2001), we compare firm-years with zero or slightly
positive scaled earnings changes to firm-years with slightly negative scaled earnings changes.
Our selection procedures generate samples that range from 3,352 to 4,139 firm-years in the
probit analysis, depending on the accrual variable to which DTE is being compared.
Approximately 60 percent of the firm-years have scaled earnings changes that are zero or slightly
positive (ie, greater than or equal to zero and less than 0.01 of the market value of equity), and
14

1994 is the first year we can compute change variables. We lose observations from 2000 when estimating the
forward-looking 15
Also, Compustat model does since not report we need deferred to use tax one-year accounts ahead for sales.
financial institutions.
16
they comprise our earnings management (ie, EM = 1) sample for this analysis. Firm-years
with scaled earnings changes that are greater than or equal to -0.01 and less than zero of the
market value of equity comprise the just missed (ie, EM = 0) control sample.
We employ the same criteria to select the earnings management and just missed samples
with regard to avoiding a loss. Our samples range in size from 2,254 to 2,785 firm-years for the
probit analysis, depending on the accrual model being considered, with approximately 64 percent
of the firm-years having scaled earnings that are zero or slightly positive.
For our analysis of analysts' earnings forecasts, we obtain forecast and actual earnings
data from Thomson Financial (I/B/E/S), and use the last mean forecast prior to annual earnings
announcements over the 1994-2000 period. We compute analysts' forecast errors (AFEs) as
actual earnings minus analysts' mean earnings forecasts per share, and keep firm-years with
AFEs between minus and plus one cent per share, inclusive. We then merge the AFEs with our
database of firm-year data needed to do the empirical analyses (eg, DTE and data to compute
accrual metrics). Finally, we delete firms having I/B/E/S stock split adjustment factors more
than three to eliminate likely EM misclassifications due to rounding problems (see Baber and
Kang 2002; Payne and Thomas 2002). This yields samples of 2,179 and 2,530 observations,
depending on the accrual metric computed. Approximately 80% of the firm-year observations
are in the EM = 1 (ie, the meet or just beat analysts' earnings forecasts) group.
16
16

Data in Figure 1 in Schwartz (2001) indicate an increasing proportion of firms in the meet or just beat group
during 1994-2000, ranging between approximately 65% and 88%.
17
IV. RESULTS
Graphical Evidence: Deferred Tax Expense and Earnings Thresholds
For descriptive purposes, we provide evidence of the relation between scaled deferred tax
expense and, respectively, earnings changes, earnings levels, and AFEs. Note, however, our
primary analyses focus on the intervals around the earnings thresholds we are considering.
Figure 4 presents a histogram of mean DTE by scaled earnings change intervals that
have a width of 0.01 of market value and range from -0.10 to 0.10. Note that the mean DTE for
the -0.01 to less than 0 interval (ie, the just missed interval) is 0.0005, whereas the mean DTE is
0.0015 in the zero and slightly positive earnings change interval. We also graphed each of the
accrual metrics by scaled earnings change intervals (not shown). Mean TAcc appears to
increase slightly in the zero or slightly positive earnings change interval vis-à-vis the just missed
interval, while the corresponding means for both abnormal accrual measures are flat around zero
scaled earnings changes.
[Insert Figure 4 here]
We display the histogram of DTE by scaled earnings levels in Figure 5. (To facilitate
comparison with the other figures, scaled earnings intervals in Figure 5 have a width of 0.01 of
market value and range from -0.10 to 0.10.) The mean DTE is negative for all loss intervals,
but becomes less negative when earnings are zero or slightly positive. More specifically, mean
DTE is -0.0047 in the slightly negative earnings interval and -0.0034 in the adjoining zero and
slightly positive earnings interval. Graphs for accruals (not shown) suggest that mean TAcc also
becomes less negative while the means of both abnormal accruals metrics sharply increase.
[Insert Figure 5 here]
18
Figure 6 shows the histogram of mean DTE by AFE intervals. Mean DTE is 0.0002 in
the negative one cent per share interval, and 0.0005 and 0.0008, respectively, in the zero and
positive one cent per share intervals. The graph of total accruals (not shown) also shows higher
accrual measures in the meet or beat intervals relative to the just missed interval, while the
graphs of the abnormal accrual measures do not.
[Insert Figure 6 here]
Descriptive Statistics and Univariate Analysis
Panel A of Table 1 presents summary statistics for our comparison of firm-years with
zero or slightly positive earnings changes versus firm-years with slightly negative earnings
changes. For the EM = 1 sample, the mean DTE is 0.0015, or 0.15% of beginning-of-year
total assets (median = 0.0001), with values ranging from -9.33% to 7% of total assets. Not
surprisingly, total accruals is substantially larger in magnitude and negative. The mean TAcc is
-0.0443 or -4.43% of beginning-of-year total assets (median = -0.0393), and the range is from
-76.42% to 89.90%. In the just missed control sample, mean DTE is 0.0005 (median = 0.0000)
and mean TAcc is -0.05 (median = -0.0446). Both abnormal accruals variables have negative
means and medians in both samples.
[Insert Table 1 here]
We statistically compare the two samples on a univariate basis (p-values are two-tailed).
We expect that if firms manage earnings upwards to avoid reporting an earnings decline, then
earnings management metrics should reflect this activity. In particular, we expect greater
deferred tax expense and greater accrual values in earnings management firm-years than in
control firm-years. The results indicate that the mean and median for both DTE and TAcc are
significantly larger in the EM = 1 sample of firm-years that just avoid an earnings decline than
19
in the just missed control sample. However, we do not observe significantly larger abnormal
accruals for the EM = 1 firm-years. Panel A also indicates that changes in operating cash flows
are reliably larger for EM = 1 firm-years, supporting its inclusion as a control variable in
equation (1).
Descriptive statistics for our analysis of earnings levels appear in Panel B of Table 1.
Consistent with DTE identifying earnings management activity to avoid a loss, the DTE mean
of -0.0027 for the earnings interval of 0 to less than 0.02 of market value of equity is
significantly greater (ie, less negative) than the DTE mean of -0.0056 for the just missed
sample. (The median is also higher in the EM = 1 sample.) The negative mean sDTE' indicate
an average deferred tax benefit, which implies that the average firm in both earnings levels
samples reports taxable income higher than book income. Average TAcc is also greater (ie, less
negative) in the EM = 1 sample, although neither the mean nor median for AbAccMJ or for
AbAccFL differ between the samples.
Panel C of Table 1 reveals no significant differences in mean and median DTE between
the EM = 1 and EM = 0 samples in the analysts' forecast setting. Means and medians for TAcc
and the abnormal accrual variables also are not significantly different.
Untabulated results indicate that across the three settings we consider, there are reliably
positive correlations between change in net income and change in operating cash flows,
consistent with Dechow (1994), and reliably negative correlations between total accruals and
cash flows from operations, consistent with Sloan (1996). Additionally, DTE and the three
accrual metrics generally are uncorrelated, which is consistent with Hanlon (2002) and suggests
that multicollinearity between DTE and the accrual measures is not an issue. This low
correlatio n between DTE and the accrual metrics also suggests that these measures may be
20
proxying for different aspects of managerial discretion over accounting choices. We find small
but significantly positive correlations between EM and DTE in the earnings change and
earnings levels settings. EM and TAccare significantly positively associated in the earnings
change and earnings levels settings, while correlations between EM and the abnormal accrual
measures are insignificant.
Primary Results
Our primary results provide evidence concerning the incremental usefulness of deferred
tax expense vis-à-vis each accrual measure in detecting earnings management to avoid an
earnings decline, to avoid a loss, and to avoid failing to meet or beat analysts' forecasts. Table 2
presents the results of comparing deferred tax expense ( DTE ) with total accruals (TAcc) across
the three earnings management settings, Table 3 compares DTE with AbAccMJ, and Table 4
compares DTE and AbAccFL. Indicated p-values are one-tailed.
Deferred Tax Expense Versus Total Accruals
Table 2 reports the results of estimating probit models with both DTE and TAcc as test
variables.17 The first set of results is shown in the left-hand pair of columns labeled “Earnings
Target 1: Scaled Earnings Changes” and concerns earnings management to avoid an earnings
decline. The middle set of columns, labeled “Earnings Target 2: Scaled Earnings,” presents the
results for earnings management to avoid a loss, and the right-hand set of columns, labeled
“Earnings Target 3: Analysts' Forecasts,” displays the results related to earnings management to
avoid failing to meet or beat analysts' earnings forecasts.
[Insert Table 2 here]
17

We also estimate separate probit models with DTE as the only test variable in the model, and with TAcc (or
AbAccMJ or AbAccFl) as the only test variable. In all settings, the coefficient significance levels for the individual
test variables are qualitatively identical to those when both test variables (DTE and the accrual metric) are included
in the model.
21
With regard to the first set of results, the coefficient on DTE is positive (3.7785) and is
significant (p = 0.0153), suggesting that deferred tax expense is incrementally useful in detecting
earnings management to avoid an earnings decline after controlling for total accruals, changes in
operating cash flows, and industry. The coefficient on TAcc equals 0.9583, and is also
significant (p < 0.0001), indicating that total accruals is also incrementally useful in detecting
earnings management in this setting. As expected, CFO ∆ is positive and significant.
The middle column of results reported in Table 2 are similar to the first set. The
coefficient on DTE is positive (5.4334) and significant (p = 0.0129), as is the coefficient on
TAcc (41.6193, p < 0.0001). Hence, deferred tax expense is incrementally useful beyond total
accruals in identifying earnings management to avoid a loss. Likewise, TAcc is incrementally
useful beyond DTE in this setting. The coefficient on CFO is also reliably positive.
In the third column of results in Table 2, TAcc has a significant coefficient (p = 0.0422),
whereas DTE does not, and thus only total accruals is incrementally useful in detecting earnings
management to avoid failing to meet analysts' forecasts. Recall that prior research on earnings
management in this setting provides conflicting evidence, and there is evidence that managerial
guidance of analysts' forecasts is perhaps more important in this setting.
Deferred Tax Expense Versus Abnormal Accruals
We report the results of the comparison of deferred tax expense and abnormal accruals
derived from the modified Jones model in Table 3. The coefficient on DTE is positive and
significant when considering both scaled earnings changes (3.6868, p = 0.0178) and scaled
earnings levels (8.8055, p < 0.0001), but is insignificant for the analysis of analysts' forecast
errors. The coefficient on AbAccMJ is only significant in the setting in which firms manage
earnings to avoid a loss (Earnings Target 2 in Table 3). Thus, DTE is incrementally useful to
22
modified Jones model abnormal accruals in detecting earnings management to avoid reporting an
earnings decline and to avoid a loss, whereas modified Jones abnormal accruals are
incrementally useful only in the latter setting.
[Insert Table 3 here]
Table 4 presents the comparison of DTE and abnormal accruals estimated using the
forward-looking model. The coefficient on DTE only approaches statistical significance (p =
0.1157) in detecting earnings management to avoid an earnings decline whereas the coefficient
on AbAccFL is positive and significant (p = 0.0002). The coefficients on DTE and AbAccFL are
both significantly positive in the analysis of earnings levels (p < 0.0001 and p = 0.0008,
respectively), while both variables are insignificant in the analysts' forecast context. Thus, DTE
is incrementally useful to forward-looking abnormal accruals in the earnings levels setting, while
forward-looking abnormal accruals are incrementally useful in both the earnings changes and
levels settings.
[Insert Table 4 here]
Summary of Primary Results
Overall, the results support hypotheses H1 and H2, but not H3. Deferred tax expense is
generally incrementally useful to the various accrual-based measures in detecting earnings
management to avoid an earnings decline (H1) and to avoid reporting a loss (H2), but not in
detecting earnings management with regard to avoiding failing to meet or beat analysts' forecasts
(H3). Abnormal accruals derived from either the modified Jones model or the forward-looking
model are sometimes incrementally useful to DTE in detecting earnings management.
Somewhat surprisingly, total accruals is incrementally useful to DTE in detecting earnings
management in all three settings we consider. Forward-looking abnormal accruals are
23
incrementally useful in the earnings change and earnings levels settings, while modified Jones
model abnormal accruals are incrementally useful only in the earnings change setting.
Supplemental Analyses
We perform an additional analysis in which we consider the relative, rather than
incremental, usefulness of deferred tax expense versus the accrual-based measures in detecting
earnings management by assessing their ability to classify firm-years as EM = 1 or EM = 0.
More specifically, we perform a Receiver Operator Characteristic (ROC) analysis (see Sprinkle
and Tubbs 1998), which Hosmer and Lemeshow (2000) argue is appropriate for this purpose
when using logit-type models. Compared to a naïve classification percentage, ROC analysis
provides a more complete description of classification accuracy by plotting the probability of
detecting a true positive and a false positive using the entire distribution of the test diagnostic
(eg, DTE and the accrual-based metrics) as potential cut points; ie, observations above the test
diagnostic's cut point are classified as positives (eg, EM = 1) and those below as negatives (eg,
EM = 0). For the settings we consider, the area under the ROC curve is determined by randomly
selecting pairs of firm-years, an EM = 1 and EM = 0, and testing to determine if the respective
earnings management measure (eg, DTE) is higher for the EM = 1 firm-year relative to the EM
= 0 firm-year. The area under the ROC curve equals the percentage of randomly drawn pairs for
which the earnings management measure is in fact higher for the EM = 1 observations.
In untabulated results, we find that the area under the ROC curve is not significantly
different between DTE and each of the accrual-based measures in the scaled earnings changes
and analysts' forecast settings, but it is significantly greater for DTE than for each of the accrual-
based measures in the scaled earnings levels setting. Thus, DTE is relatively more useful than
total accruals and both modified Jones and forward-looking abnormal accruals in accurately
classifying firm-years as earnings management or non-earnings management firm-years with
24
respect to avoiding a loss. In the setting in which firms manage earnings to avoid an earnings
decline or to avoid failing to meet or beat the consensus analysts' forecast, neither DTE nor any
accrual-based measure is relatively more useful in classifying firm-years.
We assess the sensitivity of the primary results in a number of additional ways (details
not shown). First, we use logit and OLS regressions in place of probit and obtain similar results.
Second, rather than pooling across firm-years, we estimate separate probit regressions for each of
the seven sample years. In the earnings change analysis the mean estimated coefficient on DTE
is 4.97 (Fama-MacBeth t-statistic = 2.07, p-value < 0.03), and in the earnings level analysis the
mean DTE coefficient across the seven annual regressions is 6.27 (Fama-MacBeth t-statistic =
4.47, p-value < 0.0001). Third, we augment the probit model for earnings changes with the level
of operating cash flows (and with CFO ∆ for the earnings levels case) to further control for
current performance. Our inferences remain unchanged. This is also the case when we include
the square of the cash flow variable to control for possible non-linearity in the relation between
EM and (change in) operating cash flows.
Fourth, we augment the probit regressions with three additional control variables. The
first two control variables are asset growth and revenue growth, each measured over the prior
three years. We include these variables to control for the possibility that DTE is proxying for
growth (eg, Manzon and Plesko 2002) and that EM = 1 firms are simply high growth firms
relative to EM = 0 firms. The third control variable is average return on assets over the prior
three years and serves as an additional control for performance (ie, beyond (changes in)
operating cash flows), which may affect the ability of accrual variables to detect earnings
management (McNichols 2000). Including these control variables in the probit models does not
eliminate the significance of DTE.
25
Fifth, we further investigate whether firm performance drives our result that DTE is
incrementally useful to the accrual-based metrics in detecting earnings management to avoid an
earnings decline. It is possible that high DTE is a proxy for high performance and that EM = 1
firms are simply higher performing firms than EM = 0 firms. We define performance
alternatively as pre-tax and after-tax return on lagged total assets (ROA), further define high
performance firm-years as those in the upper third of the distribution of the performance
variable, and drop firm-years in the middle third of the distribution to focus on performance
extremes (eg, McNichols 2000). We then regress EM on DTE, the accrual variable, the dummy
variable indicating high performance, and multiplicative terms interacting the high performance
dummy variable with, respectively, DTE and the particular accrual variable. Our primary results
are unaffected and the coefficients on the DTE×High ROA variables are insignificant. However,
controlling for firm performance makes the estimated coefficients on the accrual measures
insignificant. Thus, while firm performance does not drive the significance of the DTE results,
controlling for firm performance takes away the significance, and thus the incremental
usefulness, of the accrual metrics' abilities to detect earnings management in this setting.18
Sixth, because deferred taxes and accruals reverse in the subsequent year(s), we
investigate whether such reversals affect our results. We include EM
t-1

and define it to equal 1 if

a firm's earnings change (or earnings level) fell into the meet or just beat interval in the previous
period, and 0 otherwise. We also interact EM
t-1

with year t's DTE and accrual metric. If

reversals affect our results, then the coefficient on DTE
t

× EM
t-1

will be negative in both the avoid

an earnings decline and avoid a loss settings. Our primary results remain unchanged and the
18

We cannot perform this analysis in the earnings levels setting since the performance variables and EM to avoid a
loss are almost perfectly correlated. That is, because the EM = 1 versus EM = 0 classification depends solely on net
income, a performance measure that includes income produces a tautological relation with EM.
26
and coefficient on the interaction of DTE
t

EM
t-1

is insignificant. We interpret these results as

evidence that the prior year's earnings managers are not experiencing reversals of temporary
book-tax differences that are driving our primary findings.
Seventh, we perform an analysis to investigate whether firms that manage earnings in
year t have higher DTE only in year t, and not in surrounding years. Specifically, we regress this
period's EM on last period's DTE and TAcc (as well as operating cash flows and industry), and
separately on next period's DTE and TAcc. In both the earnings decline and loss settings, the
results indicate that the coefficients on the lead and the lag values of DTE are not significantly
positive. This evidence is consistent with DTE being positively related to EM only in the year a
firm is suspected of being an earnings manager.
Finally, we investigate whether tax planning actions that lower taxable income relative to
book income can explain the positive relation between DTE and EM, as opposed to attributing
this positive relation to firms managing book income upwards. We do this in two ways. First,
we compute mean and median current effective income tax rates (CurrETR), defined as current
tax expense divided by pre-tax book income (annual Compustat data items (#63+#64)/#170).
We find that on average these rates are higher for EM = 1 firm-years in both the avoid an
earnings decline and avoid a loss settings. Higher current effective tax rates for EM = 1 firm-
years suggests it is unlikely that the higher average DTE for these firm-years results from tax
planning strategies that reduce taxable income relative to book income, since such strategies
would reduce current tax expense and current effective tax rates.
Second, we include in our probit regressions a dummy variable for low current tax
expense, which equals 1 if a firm-year falls in the bottom third of the distribution of current tax
expense scaled by total assets. We also interact that dummy variable with DTE and with the
accrual variable. We reestimate the augmented models and find that our primary results are
27
unaffected while the coefficient on DTE×Low Current Tax Expense is not significant. We also
perform a similar analysis by deleting firm-years in the bottom third of the distribution of current
tax expense scaled by total assets and our primary results remain unchanged. We conclude that
low current tax expense firm-years (ie, those that engage in tax planning to lower taxable
income relative to book income) do not drive the positive relation between DTE and EM.
Overall, the supplemental analyses reinforce the support for the basic hypothesis that
deferred tax expense is incrementally useful to the accrual metrics in detecting earnings
management to avoid an earnings decline and to avoid a loss.
V. CONCLUSIONS
We investigate the incremental usefulness of deferred tax expense in detecting earnings
management. Because earnings management is accomplished using managerial discretion, and
because managers generally have more discretion under GAAP than under tax rules, we expect
that managers will manage earnings upwards by exploiting their discretion under GAAP, and
will presumably do so in a manner that does not increase current income taxes payable. If so,
such earnings management behavior will generate temporary book-tax differences that lead to
higher deferred tax expense. Building on evidence of earnings management in Burgstahler and
Dichev (1997), Degeorge et al. (1999), and Mills and Newberry (2001), and on evidence of
significant measurement error in accrual measures in Guay et al. (1996) and Bernard and Skinner
(1996), we evaluate the incremental abilities of deferred tax expense and three accrual-based
measures to detect earnings management to meet or slightly beat three earnings targets: last
year's earnings, zero earnings, and consensus analysts' forecasts.
The results support the incremental usefulness of deferred tax expense in detecting
earnings management. Deferred tax expense is generally incrementally useful to all three accrual
28
measures in detecting earnings management to avoid an earnings decline and in detecting
earnings management to avoid a loss. We also find that DTE is significantly more accurate than
the three accrual measures in classifying firm-years as earnings management and non-earnings
management firm-years with regard to avoiding a loss. DTE is not incrementally useful in
detecting earnings management to avoid failing to meet or beat analysts' forecasts.
Our results add to recent findings that indicate a relation between book and tax reporting
and firms' incentives to engage in earnings management activities (Mills and Newberry 2001).
The evidence in our paper suggests that DTE can supplement accrual measures in detecting
earnings management to avoid an earnings decline and to avoid a loss. Surprisingly, our results
suggest that total accruals is incrementally useful in detecting earnings management activities in
the three settings we consider, while the performance of abnormal accrual measures is mixed.
Further, there is evidence that firm performance can adversely affect the usefulness of the
accrual measures in detecting earnings management, whereas that does not appear to be the case
for deferred tax expense.
One limitation of our study is that our analysis is restricted to the period in which SFAS
No. 109 has been in effect. Another limitation is that we have not incorporated managerial
guidance into our investigation of the ability to detect earnings management to avoid failing to
meet or beat analysts' earnings forecasts; we leave that for future research. Future research
might also fruitfully consider (1) modeling the determinants of deferred tax expense to discover
whether DTE itself can be usefully decomposed, (2) identifying the components of DTE that
reflect most earnings management activity, and (3) examining the usefulness of DTE and accrual
variables to detect earnings management in quarterly data and in other settings.
29
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32
2,500
2,000
1,500
1,000
(.1
0
)
-
(.0
9
)
1,800
1,600
1,400
1,200
1,000
(.1
0
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9
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500
800
600
400
200

Figure 1 Frequency of Firms Across Intervals of Scaled Earnings Changes

1,644
2,495
0
(.0
9
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)
.0
9
-
.1
0

Scaled Earnings Changes

(NI
t
- NI
t-1
) / MVE
t-2

Figure 2 Frequency of Firms Across Intervals of Scaled Earnings

506
947
485
847
0
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NI
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33
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Figure 3 Frequency of Firms Across Intervals of Analy st Forecast Errors

1,026
507
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800
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Analyst Forecast Errors (Actual EPS - Mean Consensus Forecast)

Figure 4 Distribution of Deferred Tax Expense Across Intervals of Scaled Earnings

Changes
(.1
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0.001
0
-0.001
-0.002
-0.003
-0.004
-0.005
-0.006

- NI
t-1
) / MVE
t-2
34
-0
.0
1
00
.0
1
0
.0
2
0
.0
3
0
.0
4
0
.0
5
0
.0
6
0
.0
7
0
.0
8
 Figure 5 Distribution of Deferred Tax Expense Across Intervals of Scaled Earnings
0.0025
1-t
0.0015
0.0005
t
-0.0005
-0.0015
-0.0025
-0.0021
-0.0035
-0.0034
-0.0045
-0.0047 -0.0055
-0.0065
-0.0064
-0.0075
(.1
0
)
-
(.0
9
)
(.0
9
)
-
(.0
8
)

Figure 6 Distribution of Deferred Tax Expense Across Intervals of Analyst Forecast

Errors
0.0008
0.0002 (.0
8
)
-
(.0
7
)
.0 (.0
7
)
-
(.0
6
)
9
-
.1
0

Scaled Earnings
NI
t (.0
6
)
-
(.0
5
)
.0 (.0
5
)
-
(.0
4
)
.0
4
-
.0
5 (.0
4
)
-
(.0
3
)
.0
3
-
.0
4 (.0
3
)
-
(.0
2
)
.0
2
-
.0
3 (.0
2
)
-
(.0
1
)
0
1
-
.0
2 (.0
1
)
-
0
-
.0
1

/ MVE
t-1
0.0017
0.0012
0.0007
0.0005
0.0002
-0.0003
-0.1
-0.09
-0.08
-0.07
-0.06
-0.05
-0.04
-0.03
-0.02
-0.01
0 0.01
0.02
0.03
0.04
0.09
-0.0008
-0.0013
-0.0018

Analyst Forecast Errors (Actual EPS - Mean Consensus Forecast)

35
.0
5
-
.0
6
0.05
.0
6
-
.0
7
0.06
.0
7
-
.0
8
0.07
.0
8
-
.0
9
0.08
TABLE 1
Descriptive Statistics and Univariate Analysis
Panel A: Earnings Management to Avoid an Earnings Decline Samples: Zero and Slightly Positive
Earnings Changes (EM
1

1) Versus Slightly Negative Earnings Changes (EM

1

= 0), where EM
1

= 1 Firm-years Have Scaled Earnings Changes [(NI t

- NI
t-1

) / MVE
t-1

]
of at least 0 and less than 0.01 and EM
1

= 0 Firm-years Have Scaled Earnings Changes of at least -0.01 and less than 0
Percentiles
EM
1
= 1 Firm-years N Mean Std. Deviation Maximum 75th 50th 25th Minimum
DTE 2,495 0.0015
*
0.0128 0.0700 0.0066 0.0001
*
-0.0027 -0.0993
TAcc 2,495 -0.0443
*
0.0979 0.8990 -0.0034 -0.0393
*
-0.0815 -0.7642
AbAccMJ 2,495 -0.0126 0.1606 0.9888 0.0505 -0.0109 -0.0717 -0.9969
AbAccFL 2,057 -0.0009 0.1368 0.9431 0.0533 -0.0074 -0.0619 -0.9493
∆CFO 2,495 0.0215
*
0.1233 1.3465 0.0619 0.0146
*
-0.0236 -2.3563
EM
1
= 0 Firm-years
DTE 1,644 0.0005 0.0128 0.0717 0.0055 0 -0.0030 -0.0952
TAcc 1,644 -0.0500 0.1064 0.6549 -0.0050 -0.0446 -0.0857 -0.8689
AbAccMJ 1,644 -0.0110 0.1749 0.9975 0.0501 -0.0127 -0.0791 -0.8700
AbAccFL 1,295 -0.0071 0.1518 0.9801 0.0483 -0.0113 -0.0710 -0.8432
∆CFO 1,644 -0.0008 0.1432 0.7247 0.0467 0.0043 -0.0406 -1.4483
*
Mean (or median) EM
1
= 1 variable is significantly different from mean (or median) EM
1

= 0 variable in two-sided
tests of means, at the < 0.10 significance level.
36
TABLE 1 (Continued)
Panel B: Earnings Management to Avoid a Loss Samples: Zero and Slightly Positive Earnings (EM
2

=
1) Versus Slightly Negative Earnings (EM
2

= 0), where EM
2

= 1 Firm-years Have Scaled Earnings [(NI t

/ MVE
t-1

] of at least 0 and less than 0.02 and EM

2

=
0 Firm-years Have Scaled Earnings of at least -0.02 and less than 0
Percentiles
EM
2
= 1 Firm-years N Mean Std. Deviation Maximum 75th 50th 25th Minimum
DTE 1,794 -0.0027
*
0.0150 0.0734 0.0029 0
*
-0.0065 -0.0868
TAcc 1,794 -0.0332
*
0.1162 0.8351 0.0155 -0.0430
*
-0.0935 -0.8155
AbAccMJ 1,794 0.0049 0.1800 0.9735 0.0704 -0.0146 -0.0774 -0.9678
AbAccFL 1,473 0.0047 0.1742 0.9970 0.0679 -0.0080 -0.0771 -0.9958
CFO 1,794 0.0553
*
0.1182 0.8446 0.1132 0.0614
*
0.0024 -0.6767
EM
2
= 0 Firm-years
DTE 991 -0.0056 0.0160 0.0685 0 0 -0.0087 -0.1226
TAcc 991 -0.0530 0.1169 0.7243 0.0008 -0.0520 -0.1041 -0.6425
AbAccMJ 991 -0.0053 0.1863 0.9372 0.0639 -0.0228 -0.0905 -0.9824
AbAccFL 781 -0.0008 0.1689 0.9717 0.0591 -0.0 081 -0.0824 -0.7466
CFO 991 0.0183 0.1436 0.5179 0.0864 0.0331 -0.0277 -1.2737
*
Mean (or median) EM
2
= 1 variable is significantly different from mean (or median) EM
2

= 0 variable in two-sided
tests of means, at the < 0.10 significance level.
37
TABLE 1 (Continued)
Panel C: Earnings Management to Avoid Failing to Meet or Beat Analysts' Forecasts Samples: Zero or
Slightly Positive Forecast Errors (EM

= 1) Versus Slightly Negative Forecast Errors (EM

3

= 0), where EM
3

= 1 Firm-years Have Analyst

Forecast Errors (Actual EPS less Mean Consensus Forecast) at least 0 and less than or equal to .01 and
EM
3

= 0 Firm-years Have Analyst Forecast Error at least -.01 and less than 0
Percentiles
EM
3
= 1 Firm-years N Mean Std. Deviation Maximum 75th 50th 25th Minimum
DTE 2,021 0.0007 0.0153 0.0868 0.0080 0.0003 -0.0046 -0.0917
TAcc 2,021 -0.0285 0.1018 0.8914 0.0115 -0.0358 -0.0794 -0.4573
AbAccMJ 2,021 -0.0060 0.1598 0.8732 0.0563 -0.0100 -0.0713 -0.9877
AbAccFL 1,743 -0.0013 0.1360 0.8366 0.0574 -0.0073 -0.0636 -0.8554
∆CFO 2,021 0.0204 0.1431 0.8485 0.0731 0.0175 -0.0271 -2.2497
EM
3
= 0 Firm-years
DTE 509 0.0002 0.0151 0.0497 0.0070 0.0003 -0.0036 -0.0916
TAcc 509 -0.0358 0.1073 0.7730 0.0039 -0.0388 -0.0773 -0.5828
AbAccMJ 509 0.0001 0.1593 0.7799 0.0545 -0.0104 -0.0695 -0.5523
AbAccFL 436 0.0031 0.1326 0.8833 0.0487 -0.0089 -0.0639 -0.4766
∆CFO 509 0.0027 0.2509 1.4256 0.0605 0.0120 -0.0323 -4.1109
*
Mean (or median) EM
3
= 1 variable is significantly different from mean (or median) EM
3
= 0 variable in two-sided
tests of means, at the < 0.10 significance level.
38
NOTES to TABLE 1
Variable definitions: DTE is deferred tax expense (annual Compustat data item #50), scaled by total assets (annual
Compustat data item #6) at the end of year t-1. TAcc is total accruals, scaled by total assets (annual Compustat data
item #6) at the end of year t-1, is computed as EBEI − CFO, where EBEI is income
before extraordinary items (annual Compustat data item #123), and CFO is cash flows from operations (computed as
annual Compustat data items #308 - #124). AbAccMJ is abnormal accruals computed using the modified Jones
model (Dechow et al. 1995). It is calculated as the difference between TAcc and normal
accruals. Modified Jones model normal accruals are estimated as: TAcc
it
=α+β
1
(∆Sales
it
- ∆REC
it
)+β
2
PPE
it

,
where ∆Sales is the change in the firm's sales (annual Compustat data item #12) from year t-1 to year t, ∆REC is the
change in accounts receivable from operating activities (annual Compustat data item #302) fro m year t-1 to year t,
and PPE is gross property, plant, and equipment (annual Compustat data item #7). All variables are scaled by total
assets at the end of year t-1. AbAccFL is abnormal accruals computed using the forward-looking Jones model
(Dechow et al. 2002). It is calculated as the difference between TAcc and
forward-looking normal accruals. Forward-looking model normal accruals are estimated as: TAcc
it
=α+β
1
(∆Sales
it
- (1 - k )∆REC
it
)+β
2
PPE
it

β
3
TAcc
it-1
+β
4
GR_Sales
t+1
, where k is the slope coefficient from a regression of ∆REC
it
on ∆Sales
it
, TAcc
it-1

is total
accruals from year t-1, scaled by total assets as of year t-2, and GR_Sales
t+1

is the change in sales from year t to t+1, scaled by year t sales.

CFO is CFO from year t, scaled by total assets as of the end of year t-1. ∆CFO is the change in CFO from year t -1
to year t, scaled by total assets as of the end of year t-1. EM
1

is an indicator variable = 1 if the change in net income (annual Compustat data item #172) from year t-1 to year t
divided by the market value of equity
at the end of year t-2 (annual Compustat data item #25 x #199) is ≥ 0 and < 0.01, and EM
1

= 0 if the change
in net income is ≥-0.01 and < 0. EM
2

is an indicator variable = 1 if net income (annual Compustat data item #172) in year t divided by the market value of
equity at the end of year t-1 (annual
Compustat data item #25 x #199) is ≥ 0 and < 0.02, and EM
2
= 0 if net income is ≥-0.02 and < 0. EM
3

is an indicator variable = 1 if the scaled forecast error (actual EPS less mean analysts' forecast) is ≥ 0 and ≤ 0.01, and
EM
3

=
0 if the scaled forecast error is ≥ -.01 and < 0. Firm-years are from the period 1994-2000, except for AbAccFL,
where observations are from 1994-1999. The samples are trimmed at the 1
st
and 99

h percentiles based upon DTE, TAcc, and AbAccMJ or AbAccFL.

39
TABLE 2
Results of Probit Regressions for Three Earnings Targets: Comparison of Deferred Tax
Expense (DTE) to Total Accruals (TAcc)
Earnings Target 1: Scaled Earnings Changes
Earnings Target 2: Scaled Earnings
Earnings Target 3: Analysts' Forecast
Prob > ?
2
Prob > ?
2
Prob > ?
2
N = 4,139
1
p-value N = 2,785
1
p-value N = 2,530
1
p-value
Intercept 0.3241 <0.0001 0.4807 <0.0001 0.9664 <0.0001 DTE 3.7785 0.0153 5.4334 0.0129 0.7243 0.7033 TAcc
0.9583 <0.0001 41.6193 <0.0001 0.6160 0.0422 ∆CFO 1.0961 <0.0001 0.4259 0.0206 CFO 41.1719 <0.0001 Log
Likelihood -2,752 -1,157 -1,261
Earnings Target 1: Scaled Earnings Changes. Earnings management to avoid an earnings decline, where EM
1

=1
firm-years have scaled earnings changes [(NI
t
- NI
t-1
) / MVE
t-1
] of at least 0 and less than 0.01 and EM
1

= 0 firm-
years have scaled earnings changes of at least -0.01 and less than 0.
Earnings Target 2: Scaled Earnings. Earnings management to avoid a loss, where EM
2
 = 1 firm-years have scaled
earnings [NI
t
/ MVE
t-1
] of at least 0 and less than 0.02 and EM
2

= 0 firm-years have scaled earnings of at least -0.02

and less than 0.
Earnings Target 3: Analysts' Forecasts. Earnings management to avoid failing to meet or beat analysts' forecasts,
where EM
3

= 1 firm-years have analyst forecast errors (actual EPS less mean consensus forecast) at least 0 and less
than or equal to .01 and EM
3
= 0 firm-years have analyst forecast errors at least -.01 and less than 0.
1
Sample trimmed based upon DTE, TAcc, and AbAccMJ.
Industry dummy variable results not shown.
See Notes to Table 1 for variable definitions.
40
TABLE 3
Results of Probit Regressions for Three Earnings Targets: Comparison of Deferred Tax
Expense (DTE) to Modified-Jones Abnormal Accruals (AbAccMJ)
Earnings Target 1: Scaled Earnings Changes
Earnings Target 2: Scaled Earnings
Earnings Target 3: Analysts' Forecast
Prob > ?
2
Prob > ?
2
Prob > ?
2
N = 4,139
1
p-value N = 2,785
1
p-value N = 2,530
1
p-value
Intercept 0.2571 <0.0001 0.2810 <0.0001 0.9401 <0.0001 DTE 3.6868 0.0178 8.8055 <0.0001 0.8058 0.6720
AbAccMJ 0.1423 0.2506 0.8854 <0.0001 -0.0730 0.6925 ∆CFO 0.83444 <0.0001 0.2932 0.0711 CFO 2.1777
<0.0001 Log Likelihood -2,761 -1,752 -1,263
Earnings Target 1: Scaled Earnings Changes. Earnings management to avoid an earnings decline, where EM
1

=1
firm-years have scaled earnings changes [(NI t
- NI
t-1
) / MVE
t-1
] of at least 0 and less than 0.01 and EM
1

= 0 firm-
years have scaled earnings changes of at least -0.01 and less than 0.
Earnings Target 2: Scaled Earnings. Earnings management to avoid a loss, where EM
2
= 1 firm-years have scaled
earnings [NI
t
/ MVE
t-1
] of at least 0 and less than 0.02 and EM
2

= 0 firm-years have scaled earnings of at least -0.02

and less than 0.
Earnings Target 3: Analysts' Forecasts. Earnings management to avoid failing to meet or beat analysts' forecasts,
where EM
3

= 1 firm-years have analyst forecast errors (actual EPS less mean consensus forecast) at least 0 and less
than or equal to .01 and EM
3
= 0 firm-years have analyst forecast errors at least -.01 and less than 0.
1
Sample trimmed based upon DTE, TAcc, and AbAccMJ.
Industry dummy variable results not shown.
See Notes to Table 1 for variable definitions.
41
TABLE 4
Results of Probit Regressions for Three Earnings Targets: Comparison of Deferred Tax
Expense (DTE) to Forward-Looking Abnormal Accruals (AbAccFL)
Earnings Target 1: Scaled Earnings Changes
Earnings Target 2: Scaled Earnings
Earnings Target 3: Analysts' Forecast
Prob > ?
2
Prob > ?
2
Prob > ?
2
N = 3,352
1
p-value N = 2,254
1
p-value N = 2,179
1
p-value
Intercept 0.2771 <0.0001 0.3496 <0.0001 1.0197 <0.0001 DTE 2.7257 0.1157 10.2743 <0.0001 0.3648 0.8630
AbAccFL 0.6395 0.0002 0.6174 0.0008 -0.0039 0.9868 ∆CFO 1.2130 <0.0001 0.2785 0.1097 CFO 1.6944 <0.0001
Log Likelihood -2,212 -1,417 -1,083
Earnings Target 1: Scaled Earnings Changes. Earnings management to avoid an earnings decline, where EM
1

=1
firm-years have scaled earnings changes [(NI
t
- NI
t-1
) / MVE
t-1
] of at least 0 and less than 0.01 and EM
1

= 0 firm-
years have scaled earnings changes of at least -0.01 and less than 0.
Earnings Target 2: Scaled Earnings. Earnings management to avoid a loss, where EM
2
 = 1 firm-years have scaled
earnings [NI
t
/ MVE
t-1
] of at least 0 and less than 0.02 and EM
2

= 0 firm-years have scaled earnings of at least -0.02

and less than 0.
Earnings Target 3: Analysts' Forecasts. Earnings management to avoid failing to meet or beat analysts' forecasts,
where EM
3

= 1 firm-years have analyst forecast errors (actual EPS less mean consensus forecast) at least 0 and less
than or equal to .01 and EM
3
= 0 firm-years have analyst forecast errors at least -.01 and less than 0.
1
Sample trimmed based upon DTE, TAcc, and AbAccFL.
Industry dummy variable results not shown.
See Notes to Table 1 for variable definitions.
42