Strategic Deployment of Deferred Taxes in Earnings Management: Evidence from a Four-Typology Analysis
Strategic Deployment of Deferred Taxes in Earnings Management: Evidence from a Four-Typology Analysis

Summary/Abstract: This study investigates how firms strategically coordinate deferred tax positions with earnings management. Using panel data from 185 non-financial firms listed on Borsa Istanbul (2008–2022), firms were classified into a four-part typology based on the signs of deferred tax expense (DTE) and discretionary accruals (DA). Fixed Effects regressions with Driscoll-Kraay standard errors reveal no significant relationship between DTE and DA, while net deferred tax assets (NDTA) exhibit a positive association. Strategy-specific analyses, however, uncover substantial heterogeneity. The DTE–DA relationship is contingent upon strategic profile: insignificant in aggressive, tax-costly, and tax-advantaged strategies, yet strongly positive in the smoothing strategy—revealing a coordinated dual approach wherein firms simultaneously report income-decreasing accruals and high DTE. The typology demonstrates that deferred tax accounts function not as passive technical items but as active strategic tools, and that their role can only be understood through strategic heterogeneity.

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