Relationship between Real Earnings Management with Cost of Debt in Chinese Listed High-Tech Enterprises: The Perspective of Corporate Income Tax Incentives

Zhen-Jia Liu


To encourage corporate investment in innovation or R&D and foster innovative firms, the government of China established standards for the certification of high-tech enterprises in 2008. The business entities that fulfill these standards are entitled to tax deductions. One of the criteria is the ratio of R&D expenses to sales exceeding a specific percentage (which depends on the annual revenue) in the preceding 3 years. Moreover, this study examines data from the CSMAR database for the period 2008-2019 and includes data from 8,233 listed high-tech enterprises. The results show that if the proportion of pre-managed R&D expenses to pre-managed sales that are less than 6% (or 5%), 4%, or 3% in the past three years of firms with different sales range in the current year and managed earnings through sales or R&D expenses to fulfill the standards required for the certification positively influenced the costs of debt (non-significant).

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