Income Shifting by Firms with Net Operating Losses (NOL): The Effect of Extension of NOL Carry-forward Period in Korea

Abstract

This study investigates the NOL firms income shifting behavior in response to the extension of NOL carry-forward period in 2009. NOL firms are expected to shift income from 2009 to 2008 since the marginal tax rate is greatly increased due to the extension of NOL carry-forward period. I find that the NOL firms with relatively smaller NOL carry-forward amount at the end of 2008 shift income from 2009 to 2008 whereas the NOL firms with relatively greater NOL carry-forward amount at the end of 2008 shift more income from 2008 to 2009 compared to the profitable firms. These results are interpreted as that NOL firms considered being able to utilize their NOL within the extended NOL carry-forward period shift NOL to the year with extended NOL carry-forward period.