The purpose of this study is to examine whether reducing corporate income tax rate has any effect on corporate income tax smoothing tendency. This study tests two topics with which this study deals as fulfilling its purpose. First, it looks at if there is any degree difference of corporate income tax smoothing between the periods when corporate income tax rate is cut and the periods when corporate income tax rate is fixed. Second, it also investigates if there is any degree difference of income tax smoothing between the increased period of income and the decreased period of income.
Findings of this research using 849 Korean stock market listed firms from period 1994 to 1999 is summarized as follows. First, listed firms attempt to smooth taxes using either direct tax exemption items or any of several reserves. Second, it reveals that the degree of corporate income tax smoothing is lower when corporat income tax rate has been cut than when tax rate has been normal.
Third, it shows that the evidence of corporate income tax smoothing by means of direct tax exemption items is present when growth rate period of income is positive, rather than the decreased period of income.