Principal agent model of Earnings and Tax management relationship
The purpose of this study is to analyze the relationship between shareholders and managers when managing earnings and tax. We use bi-level bi-objective model to compute the diﬀerent possible situations. Our aim is to determine the decision of the manager when he is faced to two conﬂicting objectives: maximizing ﬁnancial income and minimizing taxable income. We address this situation within a principal-agent game between shareholders and managers. We consider also two other players: tax authorities and auditors. We then, propose optimum decision variables of both: shareholders and the manager that preserve their interests.