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Earnings manipulation: cost of capital versus tax. A commentary

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  • Niclas Hellman

Abstract

The paper by Eilifsen, Knivsfla and Saettem, in this issue of the journal, provides some interesting research results in the field of accounting and taxation. Contrary to most European research in this area, Eilifsen, Knivsflå and Saettem apply a theoretical, deductive, model-based approach in the positive accounting tradition, and reach the somewhat provocative conclusion that linking taxable income to accounting income reduces managers' incentives to manipulate (overstate) earnings. Their theoretical results, supporting a view of the link between taxable income and accounting income as an automatic safeguard against overstatements of earnings, is a meritorious contribution to the current debate. For example, their results should be of interest for legislators and other authorities who consider a change to less dependence between accounting and taxation. However, from my perspective, the paper by Eilifsen, Knivsflå and Saettem also gives rise to some criticism related to (i) the use of a model-based approach, and (ii) the applicability of the earnings manipulation approach.

Suggested Citation

  • Niclas Hellman, 1999. "Earnings manipulation: cost of capital versus tax. A commentary," European Accounting Review, Taylor & Francis Journals, vol. 8(3), pages 493-497.
    • Handle: RePEc:taf:euract:v:8:y:1999:i:3:p:493-497
    DOI: 10.1080/096381899335907
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    References listed on IDEAS

    as
    1. Aasmund Eilifsen & Kjell Henry Knivsfla & Frode Saettem, 1999. "Earnings manipulation: cost of capital versus tax," European Accounting Review, Taylor & Francis Journals, vol. 8(3), pages 481-491.
    2. Ritter, Jay R, 1991. "The Long-run Performance of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(1), pages 3-27, March.
    3. Kristina Artsberg, 1996. "The link between commercial accounting and tax accounting in sweden," European Accounting Review, Taylor & Francis Journals, vol. 5(1), pages 795-814.
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    Cited by:

    1. Hervé Stolowy & Gaetan Breton, 2000. "A Framework for the Classification of Accounts Manipulations," Working Papers hal-00597249, HAL.
    2. Ch. Spathis & M. Doumpos & C. Zopounidis, 2002. "Detecting falsified financial statements: a comparative study using multicriteria analysis and multivariate statistical techniques," European Accounting Review, Taylor & Francis Journals, vol. 11(3), pages 509-535.

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