Kirsten A. Cook, George Ryan Huston & Thomas C. Omer (all of Texas A&M University, Mays Business School) have posted Earnings Management through Effective Tax Rates: The Effects of Tax Planning Investment and the Sarbanes-Oxley Act of 2002 on SSRN.  Here is the abstract:

Dhaliwal, Gleason, and Mills (DGM 2004) examine whether firms manage earnings through decreases in their third to fourth quarter effective tax rates (ETRs). We examine the extent to which these changes are the result of firms’ underlying investment in tax planning in addition to or rather than earnings management. We also determine whether the passage of the Sarbanes-Oxley Act of 2002 (SOX) altered firms’ propensity to engage in earnings management using changes in ETRs and examine the impact of firms’ choices to purchase tax services from providers other than their auditors on their use of third to fourth quarter ETR changes to meet earnings targets. Our results suggest that, for firms that would miss consensus earnings forecasts in the absence of ETR changes, higher tax service fees paid to auditors are associated with greater reductions in third to fourth quarter ETRs. Our findings also suggest that, among firms that purchase tax services from providers other than their auditors, companies that would miss their earnings forecasts also experience greater reductions in third to fourth quarter ETRs than companies that would meet or beat these estimates. While we find significance for our tax fee variables, we continue to find support for the DGM (2004) earnings management explanation. Additionally, we find that the passage of SOX had little impact on the relation between tax fees paid to auditors and third to fourth quarter decreases in ETRs for firms that would miss their earnings targets.