The Effect of the Corporate Life Cycle on Corporate Profit Adjustment and Tax Avoidance

Abstract

[Purpose]Since the business environment is different depending on the life cycle of the company, we will establish an appropriate management strategy, so the incentives for profit adjustment will vary step by step. Accordingly, the method of profit adjustment will be different depending on the corporate life cycle. [Methodology]Using Dickinson’s (2011) method, companies were classified by life cycle, discretionary accrual profit adjustment was measured through the modified Jones model, and profit adjustment through tax avoidance was measured through Desai and Dharmapala (2006). [Findings]In the introduction, culling, and declining stages, companies adjusted discretionary accruals in the positive (＋) direction, and in the negative (-) direction in the maturity period. It was found that companies adjusted profits to increase profits during the introduction, culling, and declining stages, and adjusted profits to reduce profits during maturity. In addition, tax avoidance showed a positive (＋) result during the maturity period, which is interpreted as companies in the maturity period attempting to adjust profits through tax avoidance. [Implications]Companies can establish management strategies that choose different profit adjustment methods according to their life cycle.