IDEAS home Printed from https://ideas.repec.org/a/bla/acctfi/v49y2009i4p645-673.html
   My bibliography  Save this article

Market's perception of deferred tax accruals

Author

Listed:
  • Cheryl Chang
  • Kathleen Herbohn
  • Irene Tutticci

Abstract

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.

Suggested Citation

  • Cheryl Chang & Kathleen Herbohn & Irene Tutticci, 2009. "Market's perception of deferred tax accruals," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 49(4), pages 645-673, December.
    • Handle: RePEc:bla:acctfi:v:49:y:2009:i:4:p:645-673
    DOI: 10.1111/j.1467-629X.2009.00307.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1467-629X.2009.00307.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1467-629X.2009.00307.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Paul Mather & Graham Peirson, 2006. "Financial covenants in the markets for public and private debt," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 46(2), pages 285-307, June.
    2. Baljit K. Sidhu & Greg Whittred, 2003. "The Role of Political Costs in the Deferred Tax Policy Choice," Australian Journal of Management, Australian School of Business, vol. 28(1), pages 63-82, June.
    3. Eli Amir & Michael Kirschenheiter & Kristen Willard, 1997. "The Valuation of Deferred Taxes," Contemporary Accounting Research, John Wiley & Sons, vol. 14(4), pages 597-622, December.
    4. Baljit K. Sidhu, 1996. "The ‘New’ Deferred Tax: a Comment on AARF Discussion Paper No. 22 ‘Accounting for Income Tax’," Australian Accounting Review, CPA Australia, vol. 6(11), pages 37-49, March.
    5. Kothari, S. P. & Zimmerman, Jerold L., 1995. "Price and return models," Journal of Accounting and Economics, Elsevier, vol. 20(2), pages 155-192, September.
    6. Eli Amir & Theodore Sougiannis, 1999. "Analysts' Interpretation and Investors' Valuation of Tax Carryforwards," Contemporary Accounting Research, John Wiley & Sons, vol. 16(1), pages 1-33, March.
    7. Amir, E. & Kirschenheiter, M. & Willard, K., 1997. "Firm Valuation with Deferred Taxes: A Theoretical Framework," Papers 97-13, Columbia - Graduate School of Business.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ana I Lopes & Isabel Lourenço & Mark Soliman, 2013. "Do alternative methods of reporting non-controlling interests really matter?," Australian Journal of Management, Australian School of Business, vol. 38(1), pages 7-30, April.
    2. Kathleen Herbohn & Irene Tutticci & Pui See Khor, 2010. "Changes in Unrecognised Deferred Tax Accruals from Carry‐Forward Losses: Earnings Management or Signalling?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(7‐8), pages 763-791, July.
    3. Eberhartinger, Eva & Genest, Nadia & Lee, Soojin, 2020. "Financial statement users’ judgment and disaggregated tax disclosure," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 41(C).
    4. Hanlon, Dean & Navissi, Farshid & Soepriyanto, Gatot, 2014. "The value relevance of deferred tax attributed to asset revaluations," Journal of Contemporary Accounting and Economics, Elsevier, vol. 10(2), pages 87-99.
    5. Kim Mear & Michael Bradbury & Jill Hooks, 2021. "The ability of deferred tax to predict future tax," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 241-264, March.
    6. Wessel M. Badenhorst & Petri H. Ferreira, 2016. "The Financial Crisis and the Value-relevance of Recognised Deferred Tax Assets," Australian Accounting Review, CPA Australia, vol. 26(3), pages 291-300, September.
    7. Zamora Ramírez, Constancio & Moreno Rojas, José & Rueda Torres, Juan Antonio, 2014. "Contabilidad del impuesto sobre beneficios y resultado global: relevancia valorativa en el mercado financiero español," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 17(2), pages 174-182.
    8. Flagmeier, Vanessa, 2017. "The information content of tax loss carryforwards: IAS 12 vs. valuation allowance," arqus Discussion Papers in Quantitative Tax Research 216, arqus - Arbeitskreis Quantitative Steuerlehre.
    9. Kathleen Herbohn & Irene Tutticci & Pui See Khor, 2010. "Changes in Unrecognised Deferred Tax Accruals from Carry-Forward Losses: Earnings Management or Signalling?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(7-8), pages 763-791.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Anna Görlitz & Michael Dobler, 2023. "Financial accounting for deferred taxes: a systematic review of empirical evidence," Management Review Quarterly, Springer, vol. 73(1), pages 113-165, February.
    2. Gallemore, J., 2012. "Deferred Tax Assests and Bank Regulatory Capital," Other publications TiSEM c4ed0879-0d89-4594-a8f5-7, Tilburg University, School of Economics and Management.
    3. Dan S. Dhaliwal & Steven E. Kaplan & Rick C. Laux & Eric Weisbrod, 2013. "The Information Content of Tax Expense for Firms Reporting Losses," Journal of Accounting Research, Wiley Blackwell, vol. 51(1), pages 135-164, March.
    4. Flagmeier, Vanessa, 2017. "The information content of tax loss carryforwards: IAS 12 vs. valuation allowance," arqus Discussion Papers in Quantitative Tax Research 216, arqus - Arbeitskreis Quantitative Steuerlehre.
    5. Erlend Kvaal, 2018. "Discussion of ‘Making Deferred Taxes Relevant’," Accounting in Europe, Taylor & Francis Journals, vol. 15(2), pages 231-241, May.
    6. J. Douglas Hanna & Zining Li & Wayne Shaw, 2019. "Banks’ deferred tax assets during the financial crisis," Review of Quantitative Finance and Accounting, Springer, vol. 53(2), pages 527-550, August.
    7. Arjan Brouwer & Ewout Naarding, 2018. "Making Deferred Taxes Relevant," Accounting in Europe, Taylor & Francis Journals, vol. 15(2), pages 200-230, May.
    8. Kyriazopoulos Georgios & Makriyiannis Georgios & Logotheti Maria-Rafailia, 2019. "The Impact of Deferred Taxation on Banking Profitability and Capital Adequacy. Evidence from the Greek Banking System," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 5(1), pages 1-13.
    9. Dan S. Dhaliwal & Robert H. Trezevant & Michael S. Wilkins, 2000. "Tests of a Deferred Tax Explanation of the Negative Association between the LIFO Reserve and Firm Value," Contemporary Accounting Research, John Wiley & Sons, vol. 17(1), pages 41-59, March.
    10. Graham, John R. & Raedy, Jana S. & Shackelford, Douglas A., 2012. "Research in accounting for income taxes," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 412-434.
    11. Dahmash, Firas N. & Durand, Robert B. & Watson, John, 2009. "The value relevance and reliability of reported goodwill and identifiable intangible assets," The British Accounting Review, Elsevier, vol. 41(2), pages 120-137.
    12. Jenni L. Bettman & Stephen J. Sault & Emma L. Schultz, 2009. "Fundamental and technical analysis: substitutes or complements?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 49(1), pages 21-36, March.
    13. Cristian Carini & Michele Moretto & Paolo M. Panteghini & Sergio Vergalli, 2020. "Deferred taxation under default risk," Journal of Economics, Springer, vol. 129(1), pages 33-48, January.
    14. Gauri Bhat & Ole‐Kristian Hope & Tony Kang, 2006. "Does corporate governance transparency affect the accuracy of analyst forecasts?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 46(5), pages 715-732, December.
    15. Kim Mear & Michael Bradbury & Jill Hooks, 2021. "The ability of deferred tax to predict future tax," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 241-264, March.
    16. Bauman, Mark P. & Shaw, Kenneth W., 2016. "Balance sheet classification and the valuation of deferred taxes," Research in Accounting Regulation, Elsevier, vol. 28(2), pages 77-85.
    17. Hervé Roche, 2022. "The implications of tax loss carryforwards on investment policy," Mathematics and Financial Economics, Springer, volume 16, number 6, December.
    18. Robert N. Freeman, 1999. "Discussion of “Analysts' Interpretation and Investor's Valuation of Tax Carryforwardsâ€," Contemporary Accounting Research, John Wiley & Sons, vol. 16(1), pages 35-38, March.
    19. Chiang, Wei-Chih & Stammerjohan, William & Englebrecht, Ted D., 2014. "Pricing target NOLs in mergers and acquisitions from the participating firms' perspective," Advances in accounting, Elsevier, vol. 30(1), pages 32-42.
    20. De Waegenaere, A.M.B. & Sansing, R. & Wielhouwer, J.L., 2001. "Valuation of Deferred Tax Assets From a Net Operating Loss Carryover," Other publications TiSEM c26c5d4a-2a49-404a-aa59-c, Tilburg University, School of Economics and Management.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:acctfi:v:49:y:2009:i:4:p:645-673. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/aaanzea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.