A review of earnings management in private firms in response to tax rate changes

In this paper, I present a review of tax accounting research with a specific focus on earnings management in response to changes in the corporate tax rate. While prior surveys of the tax accounting literature have a broad scope and focus primarily on publicly listed firms, I concentrate on studies examining private firms. These firms have stronger incentives to engage in tax-induced earnings management and recent evidence shows that firms in general defer earnings from high to low tax periods around tax reforms. I summarize contemporary studies, questions examined, and learnings. In addition, I discuss practical implications and outline future research possibilities.