We quantify the degree of tax-induced earnings management associated with statutory tax rates and examine whether greater book-tax conformity alters this particular type of earnings management. We first validate a new empirical approach for examining tax-induced earnings management using...

This paper studies how mandating higher book-tax conformity influences a manager's strategy to misreport financial and taxable incomes in the presence of a financial auditor and subsequently a tax auditor. The main result is that allowing for some differences between GAAP and tax laws minimizes...