Taxable Income and Incremental Information of Business risk—Based on the Data of Listed Companies in China

Authors

  • Maonan Chen , Dan Huang, Zhigang Qin

Abstract

This paper is to study whether taxable income can provide incremental information on business
risk, and to analyze its relative information content to other aggregate accounting indicators. First, the
empirical results prove that the incremental information on overall business risk contained by the fluctuation
of taxable income is reflected by the fluctuation of enterprise performance. Further research shows that the
property right nature, industry and region of enterprises will have an impact on the conclusion of the main
model. However, Chinese policy of " Replacing Business Tax with Value-added Tax" and enterprise tax
avoidance will weaken the provision of business risk information by the fluctuation of taxable income;
meanwhile, the impact of tax enforceability makes the enterprise with higher level of earnings management
have more incremental information reflected by taxable income relative to the enterprise with lower level of
earnings management. The conclusions in this paper enrich the relevant researches of business risk
prediction and provide reference for business risk management.

Published

2020-08-12

Issue

Section

Articles