The effect of deferred tax expense and discretionary accruals on a firm\u27s tendency to engage in earnings management for the purpose of avoiding an earnings decline and earnings loss

This study seeks to determine whether or not deferred tax expense and discretionary accruals affect the tendency to engage in earnings management in two settings: to avoid an earnings decline, or earnings loss. This thesis observed Philippine publicly listed companies for the years 2011-2015. For each setting, we identified firm-years that engaged in earnings management through Burgstahler and Dichev\u27s (1997) earnings distribution approach and utilized a panel logistic regression model to test our hyphotheses.The findings conclude that a deferred tax expense has a significant effect only in earnings management to avoid an earnings decline in the industrial sector due to the sector\u27s low capital intensity. Discretionary accruals also proved to be insignificant in upwards earnings management as firms predominantly used negative discretionary accruals. Additionally, the presence of information asymmetry in the Philippine stock market may have also contributed to this.Among the control variables included in the study, only the difference in industry sector proved to be significant in the tendency to engage in earnings management in both settings