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Market's perception of deferred tax accruals
Author(s) -
Chang Cheryl,
Herbohn Kathleen,
Tutticci Irene
Publication year - 2009
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.2009.00307.x
Subject(s) - accrual , deferred tax , business , financial statement , accounting , profitability index , income statement , market value , economics , balance sheet , monetary economics , finance , tax reform , public economics , state income tax , gross income , audit , earnings
This study investigates the value relevance and incremental information content of deferred tax accruals reported under the ‘income statement method’ (AASB 1020 Accounting for Income Taxes ) over the period 2001–2004. Our findings suggest that deferred tax accruals are viewed as assets and liabilities. We document a positive relation between recognized deferred tax assets and firm value using the levels model, while the results from the returns model suggest that deferred tax liabilities reflect future tax payments. The balance of unrecognized deferred tax assets provides a negative signal to the market about future profitability, particularly for companies from the materials and energy sectors and loss‐makers.