Book-Tax Differences as an Indicator of Financial Distress

Abstract

SYNOPSIS: We contend that tax-related information, which has not yet been considered by extant research, can significantly improve bankruptcy prediction. We investigate the association between abnormal changes in book-tax differences (BTDs) and bankruptcy using a hazard model and out-of-sample testing as in Shumway (2001). We find that information regarding abnormal changes in BTDs significantly increases our ability to ex ante identify firms that have an increased likelihood of going bankrupt in the coming five-year period. The information provided by BTDs significantly adds information to traditional models for predicting bankruptcy, such as that proposed by Ohlson (1980), and also expands the prediction window beyond the traditional two-year time frame.

A Potential Risk of Increasing Cross-National Distance: Evidence from Less Sustainable Tax Policies

“…First, it is one of the few, if not the first, research to provide detailed empirical evidence on the relationship between cross-national distances and sustainability of tax policies with a sample of Japanese listed firms. This study extends the book-tax difference studies [1][2][3][4][5][6][7]20,22,25,26] and cross-national distance studies [11,12,27,28] by providing evidence that multidimensional cross-national distance dimensions may lead to a negative effect on the sustainability of tax policies. Second, the dimensions of cross-national distance of FDI (i.e., perspectives from economic, political, administrative, cultural, demographic, knowledge, and geographical distance) and the indicator variable of sustainable tax policies provide a methodological contribution on enriching both international business and environmental studies of country characteristics and business sustainability.…”

“…In addition, existing literatures also suggest that the change of book-tax differences is related with firm performance, financial distress, and default risk [25,26]. Ayers et al [25] investigate the relation between changes in book-tax differences and credit rating changes.…”

“…The results support their hypotheses and suggest that large changes in book-tax differences (both positive and negative) are negatively related with favorable rating changes. Noga and Schnader [26] demonstrate that large abnormal changes in book-tax difference can be utilized as an indicator of high risk for bankruptcy. They find firms with larger changes in book-tax difference compared to their counterparts have an increased likelihood of experiencing bankruptcy in the coming five-year period.…”

نماذج التعلم الآلی والتنبؤ بالتعثر المالی للشرکات الصغیرة والمتوسطة فی البیئة المصریة

“…(Treewichayapong, et al, 2011) conclude that the binary logistic regression model is superior to the Cox proportional Hazards model in reducing type I error and increasing prediction accuracy. (Noga and Schnader, 2013) investigate the association between book-tax differences (BTDs) and bankruptcy, using a hazard model. The results reveal that abnormal changes in book-tax differences (BTDs) can be used as an ex-ante approach to identify firms which have an increased likelihood of going bankrupt in the coming five-year period.…”

Book Tax Differences dan Persistensi Laba Pada Perusahaan Manufaktur

“…Laba yang persisten adalah laba yang tidak sering meng alami fluktuasi pada setiap periodenya dan cenderung lebih stabil. Dalam hal ini persistensi laba dimanfaatkan sebagai alat ukur kualitas laba karena laba berkualitas akan menunjukkan kesinambungan laba (Noga & Schnader, 2013). Beberapa referensi kajian keuangan menerangkan kontribusi book tax differences dalam mengevaluasi kualitas laba yang dilaporkan oleh perusahaan.…”