The Effect of Earnings Management and Taxable Profit

Earnings management has been defined by several scholars. Strakova (2006) defined earnings management to be as accounting techniques used by managers to produce financial reports that would distort the actual operating results or manipulate the outcome of contracts of their firms. Earnings management is also defined by Sun et al. (2010) as procedures that the management selects and the application of some accounting methods to influence financial results, in order to meet predetermined revenue goals. Earnings management is the process of deviating from standard accounting processes and adjusting reported income (Roychowdhury, 2006). It is the purposeful manipulation of financial statements to look good in the eyes of the public and influence major decisions based on accrued earnings per share results which are often called the shareholders’ profits (Healy & wahlen, 1999; Scott, 2014). According to Scott (2014) stock analysts and investors are often attracted to a particular stock by considering the earnings of the firm.