Andrew Hayashi (Virginia; Google Scholar) presents The Effect of CAMT on Financial Reporting at USC today as part of its Corporate and Commercial Law Seminar hosted by Michael Simkovic and D. Daniel Sokol:

We estimate the effect of the Corporate Alternative Minimum Tax enacted in 2022 on the financial reporting behavior of large companies. The CAMT provides that firms with average over $1 billion of income may owe a tax based on financial income rather than taxable income. For in-scope firms, CAMT imposes direct costs in the form of a higher effective tax rate and indirect costs in terms of increased complexity from complying with, and planning for, the alternative tax. As a result, firms have incentives to manage their financial earnings downward to stay below the $1 billion threshold or reduce their CAMT liability. This incentive is counterbalanced by the benefits to the firm or executives of higher financial income. We present the results of pre-registered analyses of the impact of CAMT on earnings management. 

We find modest evidence that distance from the $1 billion threshold is associated with more downward earnings management. Further exploratory analysis suggests that firms above the threshold are more likely to have abnormal accruals and special items that reduce net income.

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