The Information Content of the Deferred Tax Valuation Allowance PDF Download
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Author: Krishna R. Kumar
Publisher:
ISBN:
Category :
Languages : en
Pages : 57
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Book Description
An event study demonstrates that disclosures of changes in deferred tax valuation allowances (VA) provide information beyond contemporaneous earnings reports. Prior research shows that, in setting VA, managers consider the extent that taxable income is available from various sources for the realization of deferred tax assets (DTA). Our evidence supports a characterization where investors use VA disclosures to infer management's expectations about DTA realizability and future taxable income available for their realization. These findings are potentially important evidence on the implications of financial accounting standards that allow discretion in measurement. In particular, they support the view that such discretion can serve to elicit management's expectations for the benefit of investors.
Author: Krishna R. Kumar
Publisher:
ISBN:
Category :
Languages : en
Pages : 57
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Book Description
An event study demonstrates that disclosures of changes in deferred tax valuation allowances (VA) provide information beyond contemporaneous earnings reports. Prior research shows that, in setting VA, managers consider the extent that taxable income is available from various sources for the realization of deferred tax assets (DTA). Our evidence supports a characterization where investors use VA disclosures to infer management's expectations about DTA realizability and future taxable income available for their realization. These findings are potentially important evidence on the implications of financial accounting standards that allow discretion in measurement. In particular, they support the view that such discretion can serve to elicit management's expectations for the benefit of investors.
Author: Andrew Finley
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
We examine the extent to which deferred tax valuation allowance (VA) releases - a discretionary accounting judgment that increases net income based on estimated future tax benefit realizations- are predictive of future earnings. We first find that profitable firms releasing at least a portion of a full VA have higher subsequent earnings relative to a control group that maintains a full VA. These results vary depending on firms' cumulative profitability in recent years and suggest some firms appear to rely on historical fact patterns rather than estimations of future profitability to justify the VA release. In additional analysis, we observe that among firms lacking cumulative profits in recent years, VA releasers generate higher subsequent abnormal returns than VA maintainers, suggesting investors are not timely responding to the information content from the VA release decision.
Author: Do-Jin Jung
Publisher:
ISBN:
Category :
Languages : en
Pages : 204
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Book Description
Author: Eric James Allen
Publisher:
ISBN:
Category :
Languages : en
Pages : 85
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Book Description
In this dissertation I examine the deferred tax disclosures of a unique sample of venture capital backed firms that conducted their initial public offering (IPO) between 1996 and 2008, and generated a net operating loss (NOL) carry-forward. I find that 83% of the sample firms record an allowance fully valuing-out the carry-forward's associated deferred tax asset. This full allowance is, on average, 72% of total assets - a fact which provides strong evidence (at least in terms of this accrual) that these firms are not upwardly managing their earnings prior to IPO. I show that the size of a firm's NOL, and proxies for its expectation of future taxable income have significant predictive power for the magnitude of the valuation allowance. I also show that the allowance sends a strong negative signal about a firm's future book income. Both of these results support the contention that, though conservative, the valuation allowance does provide information about an IPO firm's economic fundamentals. Finally, I introduce a new explanation for the presence of the allowance: the ownership change limitation. This limitation can cause a firm to record an allowance independent of its expectations about future earnings. I provide evidence that firms take this limitation into account when recording the valuation allowance, and that controlling for it can enhance the allowance's signal regarding future income.
Author: John R. Graham
Publisher: Now Pub
ISBN: 9781601986122
Category : Business & Economics
Languages : en
Pages : 176
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Book Description
Accounting for Income Taxes is the most comprehensive review of AFIT research. It is designed both to introduce new scholars to this field and to encourage active researchers to expand frontiers related to accounting for income taxes. Accounting for Income Taxes includes both a primer about the rules governing AFIT (Sections 3-4) and a review of the scholarly studies in the field (Sections 5-8). The primer uses accessible examples and clear language to express essential AFIT rules and institutional features. Section 3 reviews the basic rules and institutional details governing AFIT. Section 4 discusses ways that researchers, policymakers, and other interested parties can use the tax information in financial statements to better approximate information in the tax return. The second half of the monograph reviews the extant scholarly studies by splitting the research literature into four topics: earnings management, the association between book-tax differences and earnings characteristics, the equity market pricing of information in the tax accounts, and book-tax conformity. Section 5 focuses on the use of the tax accounts to manage earnings through the valuation allowance, the income tax contingency, and permanently reinvested foreign earnings. Section 6 discusses the association between book-tax differences and earnings characteristics, namely earnings growth and earnings persistence. Section 7 explores how tax information is reflected in share prices. Section 8 reviews the increased alignment of accounting for book purposes and tax purposes. The remainder of the paper focuses on topics of general interest in the economics and econometric literatures. Section 9 highlights some issues of general importance including a theoretical framework to interpret and guide empirical AFIT studies, the disaggregated components of book-tax differences and research opportunities as the U.S. moves toward International Financial Reporting Standards (IFRS). Section 10 discusses econometric weaknesses that are common in AFIT research and proposes ways to mitigate their deleterious effects.
Author: Kees Camfferman
Publisher: OUP Oxford
ISBN: 0199296294
Category : Business & Economics
Languages : en
Pages : 702
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Book Description
A detailed and scholarly historical study of the International Accounting Standards Committee (IASC), which prepared the way for the International Accounting Standards Board (IASB). The IASB holds the dominant influence over the financial reporting of thousands of listed companies in the European Union as well as in many other countries.
Author: Chia-Ling Chao
Publisher:
ISBN:
Category : Accounting
Languages : en
Pages : 336
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Book Description
Author: Eli Amir
Publisher:
ISBN:
Category : Corporations
Languages : en
Pages : 58
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Book Description
Author: Gregory S. Miller
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
A long-standing issue in the accounting literature is whether corporate managers exercise their accounting discretion to influence reported earnings. This paper extends this research by investigating whether managers manipulate the 'valuation allowance' for deferred tax assets. This account has several features that recommend it as a good place to look for earnings management. First, since this account is fairly 'new' (1992), there are no well-established formulae, or even any clear guidelines, for deciding on the appropriate level for this allowance. Second, the appropriate level of the allowance depends on managers' expectations about future earnings. For both of these reasons managers must exercise an unusual amount of discretion in choosing the appropriate level for this account. Finally, for many firms this provision is large enough to effect material adjustments to accounting earnings. We find that there is a good deal of variation across firms in the level of the valuation allowance. Part of this variation is explained by factors that appropriately reflect managers' expectations about whether their firms' deferred tax assets will be realized. In addition, after controlling for these factors, we find support for two earnings-management hypotheses: both the debt/equity hypothesis and income-smoothing have empirical support.
Author: Gregory S. Miller
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This paper explores the determinants of the valuation allowance for deferred tax assets under SFAS No. 109. We find that, consistent with SFAS No. 109, the allowance is larger for firms with relatively more deferred tax assets and smaller for firms with higher levels of expected future taxable income. The most important explanatory variable for the valuation allowance is the level of firms' tax credit and tax loss carryforwards, consistent with these items being more difficult to realize. We find little evidence that managers use the valuation allowance for earnings management purposes, although these tests may not be very powerful.
