Additional Evidence of Firms’ Willingness to Pay Taxes on Apparent Fictitious Earnings

Abstract

This paper attempts to answer the question of whether firm’s who are actively engaged in earnings management and reporting fictitious earnings, are willing to pay the additional taxes on these fictitious earnings. Two methods were used. One found that 76 out of 87 firms that reported fictitious earnings and restated their statements were willing to pay 10.9% more taxes. In the second method, the effective tax rates (ETR) before, after and during the year fictitious earnings were compared. The results also indicate that some firms were willing to pay taxes on fictitious earnings.