Earnings Management in Response to the Introduction of the Australian Gold Tax*

• DOI: 10.1506/kc7w-c1vn-y5d4-nav4
• Publication Date: 2007-03-27T15:39:44Z
• Authors: Reza M. Monem
• Keywords: Earnings Management; Scrutiny; Prosperity; Sample (material)

Abstract Earnings from gold mining in Australia remained tax‐exempt for almost seven decades until January 1, 1991. In the early 1980s, rapid economic prosperity induced by escalated prices brought Australian gold‐mining industry under intense political scrutiny. Using a variant of modified Jones model, this paper provides evidence significant downward earnings management firms, which is consistent with their attempts to mitigate costs during period June 1985 May 1988. contrast, test over similar control sample Canadian firms produced insignificant results. Further, empirical results are robust several sensitivity tests performed. During 1988 December 1990, were found have engaged management. This firms' incentive maximizing immediately prior introduction income tax on mining. The findings study help understand impact efficient resource allocation an economy. They also contribute toward understanding linkage between regulation accounting special purposes and general‐purpose financial reporting.