Earnings Management in Response to Corporate Tax Rate Changes: Evidence from the 1986 Tax Reform Act.

Key Points

• The research aims to determine if corporate earnings are manipulated due to adjustments in statutory tax rates following the Tax Reform Act of 1986.
• Analysis of accounting earnings for American corporations pre- and post-TRA
• Examination of changes in statutory corporate income tax rates
• Evaluation of earnings management practices in relation to tax reductions
• Identified a significant decrease in the maximum corporate tax rate from 46% to 34%
• Found evidence of earnings management in response to the tax rate change
• Corporations demonstrated shifts in accounting practices aligned with lowered tax liabilities