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DOES DEFERRED TAX MEDIATE THE RELATIONSHIP BETWEEN TAX PLANNING AND EARNINGS MANAGEMENT?

The objective of this study is to investigate the effect of deferred tax disclosed under the Egyptian Accounting Standard No. 24, income taxes and tax planning on earnings management. In addition, to investigate the role of net deferred tax liabilities as a mediator between tax planning and earnings management. This study employs a sample of 127 firms listed on the Egyptian stock exchange covering the period 2012 to 2018 ending up with 889 observations. Stratified simple random sampling technique was used to select the sample. Path analysis is employed to examine the framework of the study and analyses the indirect effect of tax planning on earnings management. In addition, Ordinary Least Square Regression is employed to calculate discretionary accrual, which is used as a proxy to earnings management. The results suggest that tax planning does not have a significant direct effect on earnings management. However, it has a significant indirect effect on earnings management through net deferred tax liabilities, which in turn has a significant direct effect on earnings management. Findings of this paper may be of interest to financial analysts and standard setters, as they highlight how tax planning and deferred tax liabilities affect the quality of accounting information.