IDEAS home Printed from https://ideas.repec.org/a/spr/jbecon/v94y2024i1d10.1007_s11573-023-01147-7.html
   My bibliography  Save this article

Does IFRS information on tax loss carryforwards and negative performance improve predictions of earnings and cash flows?

Author

Listed:
  • Sandra Dreher

    (Otto-von-Guericke-Universität Magdeburg)

  • Sebastian Eichfelder

    (Otto-von-Guericke-Universität Magdeburg)

  • Felix Noth

    (Otto-von-Guericke-Universität Magdeburg
    Halle Institute for Economic Research)

Abstract

We analyze the usefulness of accounting information on tax loss carryforwards and negative performance to predict earnings and cash flows. We use hand-collected information on tax loss carryforwards and corresponding deferred taxes from the International Financial Reporting Standards tax footnotes for listed firms from Germany. Our out-of-sample tests show that considering accounting information on tax loss carryforwards does not enhance performance forecasts and typically even worsens predictions. The most likely explanation is model overfitting. Besides, common forecasting approaches that deal with negative performance are prone to prediction errors. We provide a simple empirical specification to account for that problem.

Suggested Citation

  • Sandra Dreher & Sebastian Eichfelder & Felix Noth, 2024. "Does IFRS information on tax loss carryforwards and negative performance improve predictions of earnings and cash flows?," Journal of Business Economics, Springer, vol. 94(1), pages 1-39, January.
    • Handle: RePEc:spr:jbecon:v:94:y:2024:i:1:d:10.1007_s11573-023-01147-7
    DOI: 10.1007/s11573-023-01147-7
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11573-023-01147-7
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s11573-023-01147-7?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
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Performance forecast; Out-of-sample tests; Deferred tax assets; Tax loss carryforwards;
    All these keywords.

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

    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:spr:jbecon:v:94:y:2024:i:1:d:10.1007_s11573-023-01147-7. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    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.