Consistency of Book-Tax Differences and the Information Content of Earnings

2012 ◽  
Vol 34 (2) ◽  
pp. 93-116 ◽  
Author(s):  
Linda H. Chen ◽  
Dan S. Dhaliwal ◽  
Mark A. Trombley
Keyword(s):  
Standard Deviation ◽  
Earnings Management ◽  
Information Content ◽  
Joint Effect ◽  
Tax Planning ◽  
Taxable Income ◽  
Incremental Effect ◽  
The Difference ◽  
Jel Classifications

ABSTRACT This paper examines the effect of tax planning and earnings management on the informativeness of book income and taxable income. We conduct two sets of tests documenting (1) the incremental effect of tax planning and earnings management on the informativeness of book and taxable income, and (2) the relation between the consistency of the book-tax difference and the informativeness of book and taxable income. The consistency of the book-tax difference depends on firm decisions regarding incremental earnings management and tax planning. Consistency of the book-tax difference is measured as the standard deviation of the discretionary component of the difference between book income and taxable income. Our results show that consistency of the book-tax difference, as a measure of the joint effect of earnings management and tax planning, is related to persistence of both book and tax income and has an incremental effect on information content of both book income and taxable income. JEL Classifications: G12; G32; H24; H25.

scholarly journals PENGARUH LINDUNG NILAI, FINANCIAL LEVERAGE, DAN MANAJEMEN LABA TERHADAP AGRESIVITAS PAJAK

2017 ◽  
Vol 17 (1) ◽  
pp. 31
Author(s):  
Furqon Nurhandono ◽  
Amrie Firmansyah
Keyword(s):  
Panel Data ◽  
Earnings Management ◽  
Empirical Evidence ◽  
Tax Evasion ◽  
Significant Relationship ◽  
Stock Exchange ◽  
Tax Planning ◽  
Financial Leverage ◽  
Tax Aggressiveness ◽  
Taxable Income

<em>This research is aimed to provide empirical evidence about relationship between hedging, financial leverage, and earnings management on tax aggressiveness.</em> <em>Frank and Rego (2009) defines tax aggressiveness as the act of manipulation to reduce the amount of taxable income through tax planning efforts either it can or can not be categorized as an act of tax evasion. Using purposive sampling this research selected 24 firms that are listed in Indonesian Stock Exchange from 2011-2015 as samples. The result of multiple regression of panel data shows that there is positively significant relationship between financial leverage and tax aggressiveness as well as earnings management and tax aggressiveness. While there is no significant relationship between hedging and tax aggresiveness. </em>

scholarly journals PENGARUH AKTIVA PAJAK TANGGUHAN TERHADAP MANAJEMEN LABA PERUSAHAAN INDUSTRI MANUFAKTUR BASIC INDUSTRI YANG TERDAFTAR DI BURSA EFEK INDONESIA

2017 ◽  
Vol 3 (3) ◽  
pp. 253-257
Author(s):  
DINI ONASIS ◽  
AFVAN AQUINO
Keyword(s):  
Earnings Management ◽  
Earning Management ◽  
Taxable Income ◽  
Deferred Tax Assets ◽  
The Future ◽  
Size Growth ◽  
Tax Benefits ◽  
The Difference ◽  
Deferred Tax ◽  
Opportunistic Management

Agent conflicts that result in opportunistic management that will result in reported earnings, which will cause the company's value to decrease in the future. Deferred tax assets occur when accounting income is less than fiscal profit due to temporary differences. The smaller accounting earnings than the fiscal profit resulted in the company being able to postpone taxes in the future period. However, if the fiscal profit may not be available in sufficient quantities to be compensated with the balance of the tax loss carry forward, or where possible the realization of future tax benefits with a probability of less than 50 per cent, deferred tax assets are not recognized and the company will record the reserves Deferred tax assets. Other problems also arise when the company has a large accounting income (Book Income) in comparison with the fiscal (Taxable Income) earnings in the financial statements. Problems in these conditions include companies, especially companies that have Go Public on its management will conduct earnings management as a fraud (fraud) relation in tax payment or reporting tax payable on the company. Companies that have a higher account income (Income Income) than a fiscal profit (Taxable Income) tendency to manage earnings at the company will be high in order to avoid large tax payments. This research is feasible to find empirical evidence whether the ownership of the deferred tax of the company or the difference between the Company's Book Income and Taxable Income affects Profit Management. The results of the research found that Deferred Tax Assets did not affect the Earning Management, Size did not affect the Earning Management, Growth (growth) did not affect the Earning Management, Leverage has no effect on Earning Management, Simultaneously Deferred Tax Assets, Size, Growth and Leverage Has no effect on earnings management for basic manufacturing industries for 2014 and 2015. Keyword: Deferred Tax Asset, Profit Management (Earning Management), Size, Growth, Leverage.

Smoothness and the Value Relevance of Taxable Income

2015 ◽  
Vol 37 (2) ◽  
pp. 141-167 ◽  
Author(s):  
Michael A. Mayberry ◽  
Sean T. McGuire ◽  
Thomas C. Omer
Keyword(s):  
Value Relevance ◽  
Tax Avoidance ◽  
Tax Planning ◽  
Additional Analysis ◽  
Taxable Income ◽  
Planning Strategy ◽  
Avoidance Strategy ◽  
Jel Classifications

ABSTRACT This study investigates whether the smoothness of estimated taxable income influences its value relevance. Contrary to research that finds that smoothness enhances the value relevance of book income, we find that smoothness reduces the value relevance of taxable income. We decompose the smoothness of taxable income into its innate and discretionary components and find that innate smoothness is not associated with the value relevance of taxable income. However, we find that discretionary smoothness is associated with a reduction in taxable income's value relevance, suggesting that discretionary smoothness either eliminates or reduces the information contained in taxable income. In additional analysis, we find that discretionary smoothness is also associated with higher levels of future tax avoidance, consistent with managers smoothing taxable income as part of their tax avoidance strategy. In combination, our results suggest that the reduced value relevance of estimated taxable income is a byproduct of managers' tax-planning strategy. JEL Classifications: G32; H25; H32; M41.

Do Investors Use Prior Tax Avoidance when Pricing Tax Loss Carryforwards?

2016 ◽  
Vol 38 (2) ◽  
pp. 27-49 ◽  
Author(s):  
Sean T. McGuire ◽  
Stevanie S. Neuman ◽  
Adam J. Olson ◽  
Thomas C. Omer
Keyword(s):  
Avoidance Behavior ◽  
Tax Avoidance ◽  
Tax Planning ◽  
High Variability ◽  
Data Availability ◽  
Taxable Income ◽  
Internal Revenue ◽  
Valuation Allowance ◽  
Tax Loss ◽  
Jel Classifications

ABSTRACT The Internal Revenue Code allows firms to carry excess tax losses forward to offset future taxable income and reduce taxes. Consistent with tax loss carryforwards (TLCFs) creating a significant asset, prior research finds that investors positively value TLCFs. However, investors face significant uncertainty about whether firms will have sufficient future taxable income to benefit from TLCFs. We hypothesize that investors' valuation of new TLCFs will vary with firms' prior tax avoidance behavior because it signals firms' abilities to generate taxable income to offset TLCFs through tax planning. We confirm that investors assign a positive value to new TLCFs and find that investors' valuation varies with firms' prior tax avoidance behavior. Investors positively value TLCFs when firms exhibit high variability in prior tax avoidance and high levels of prior tax avoidance. Our results are incremental to the effect of changes in the valuation allowance on investors' valuation of new TLCFs. JEL Classifications: M40; M41; M49. Data Availability: Data used in this study are available from public sources identified in the paper.

scholarly journals Information Content of Tax Planning and Taxable Income

2012 ◽  
Vol null (33) ◽  
pp. 71-85
Author(s):  
김형국 ◽  
Seo Ji Seong
Keyword(s):  
Information Content ◽  
Tax Planning ◽  
Taxable Income

Come on Over: Analyst/Investor Days as a Disclosure Medium

2016 ◽  
Vol 91 (6) ◽  
pp. 1725-1750 ◽  
Author(s):  
Marcus P. Kirk ◽  
Stanimir Markov
Keyword(s):  
Information Content ◽  
Short Duration ◽  
Price Impact ◽  
Senior Management ◽  
Data Availability ◽  
Market Participants ◽  
Temporal Proximity ◽  
Conference Presentations ◽  
Close Temporal Proximity ◽  
Jel Classifications

ABSTRACT Our study introduces analyst/investor days, a new disclosure medium that allows for private interactions with influential market participants. We also highlight interdependencies in the choice and information content of analyst/investor days and conference presentations, a well-researched disclosure medium that similarly allows for private interactions. Analyst/investor days are less frequent, but with longer duration and greater price impact than conference presentations. They are mostly hosted by firms that already have opportunities to interact with investors at conferences, but whose complex and diverse activities make the short duration and rigid format of a conference presentation an imperfect solution to these firms' information problems. Analyst/investor days and conference presentations tend to occur in different quarters, consistent with their competing for the time and attention of senior management. When these two mediums are scheduled in close temporal proximity to each other, analyst/investor days diminish the information content of conference presentations, but not vice versa, consistent with managers' favoring analyst/investor days over conference presentations as a disclosure medium. JEL Classifications: D82; M41; G11; G12; G14. Data Availability: Data are publicly available from the sources identified in the paper.

Markedness and Perspective in the Interpretation of the Active and Passive Voice

1974 ◽  
Vol 26 (2) ◽  
pp. 189-195 ◽  
Author(s):  
Irene Klenbort ◽  
Moshe Anisfeld
Keyword(s):  
Information Content ◽  
Focal Point ◽  
The Other ◽  
Clear Pattern ◽  
Passive Voice ◽  
Other Hand ◽  
Logical Subject ◽  
The Difference

The subjects were presented with active and passive sentences. For each sentence, they had to choose between two alternative implications. The pattern of choices indicates that in the passive the logical subject was interpreted by the subjects as the focal point of the information asserted by the sentence and as the carrier of overall responsibility for the sentential proposition. In contrast to the passive, there was no clear pattern of preferences for the active. The difference between the two voices was attributed to their markedness asymmetry, the passive being marked and the active unmarked. It is concluded that the active offers a neutral structure for conveying information; a structure available for use when one does not want to superimpose on the information content any stylistic or connotational implications. The passive, on the other hand, suggests special connotations in addition to the basic message.

Auditors' Constraining Effect on Tax Noncompliance at Different Book-Tax Conformity Levels in a Transition Economy

2016 ◽  
Vol 15 (3) ◽  
pp. 1-30 ◽  
Author(s):  
K. Hung Chan ◽  
Rebecca Luo ◽  
Phyllis Lai Lan Mo
Keyword(s):  
Earnings Management ◽  
Transition Economy ◽  
Tax Compliance ◽  
High Quality ◽  
Auditor Quality ◽  
Direct Linkage ◽  
Tax Reporting ◽  
Jel Classifications ◽  
Tax Noncompliance

ABSTRACT This study examines how differential auditor quality can affect clients' tax noncompliance at different book-tax conformity levels. Overall, we find that high-quality auditors are associated with client firms' better tax compliance. Specifically, high-quality auditors are effective in constraining book-tax-conforming noncompliance because of the direct linkage between financial and tax reporting for such noncompliance at both the higher and the lower conformity periods. In contrast, high-quality auditors' constraining effect on book-tax-difference noncompliance is significant only in the lower conformity period when there are more opportunities for reporting irregularities. Furthermore, firms that switch from a low- to a high-quality auditor have better tax compliance after the switch. This study contributes to the literature by providing evidence that high-quality auditors not only can constrain clients' earnings management, but can also constrain tax noncompliance. JEL Classifications: M41; M42.

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