Although prior studies provide evidence on the financial reporting incentives to inflate core earnings through classification shifting (e.g., shifting core expenses to income-decreasing noncore items), few examine the tax-related incentive to report lower core earnings through classification shifting. We examine the effect of controlling shareholders' tax incentives on firms' classification shifting using the introduction of a tax law in Korea that imposes a gift tax on controlling shareholders based on firms' reported core earnings. This tax law creates incentives for managers to report lower core earnings through classification shifting, even though doing so would incur significant financial reporting costs. Using a difference-in-differences research design, we find that firms with controlling shareholders subject to the gift tax exhibit a significant decline in classification shifting in the post-tax period, while those not subject to the tax do not. We also predict and find that the extent to which managers reduce classification shifting decreases with financial reporting costs and increases with the tax benefits. Overall, our results indicate that firms forgo financial reporting benefits associated with reporting higher core earnings for the tax savings of their controlling shareholders.

中文翻译：

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控股股东的税收优惠和分类转移*

尽管先前的研究提供了财务报告激励通过分类转换来夸大核心收益的证据（例如，将核心费用转移到收入减少的非核心项目），但很少有人研究通过分类转换报告降低核心收益的税收相关激励。我们使用韩国引入的税法，根据公司报告的核心收益对控股股东征收赠与税，研究控股股东的税收优惠对公司分类转移的影响。该税法鼓励管理人员报告较低通过分类转换实现核心收益，即使这样做会产生大量的财务报告成本。使用差异中的差异研究设计，我们发现有受赠予税的控股股东的公司在税后期间表现出分类转移的显着下降，而未受赠税的公司则没有。我们还预测并发现，管理者减少分类转移的程度随着财务报告成本的增加而降低，并随着税收优惠的增加而增加。总体而言，我们的结果表明，公司放弃了与报告更高核心收益相关的财务报告利益，以节省控股股东的税收。