Do Analysts and Investors Fully Appreciate the Implications of Book‐Tax Differences for Future Earnings?*

Weber, David P.

doi:10.1506/car.26.4.7

Cited by 164 publications

(119 citation statements)

References 65 publications

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“…Further, Lev and Nissim (2004) claimed that investors overly reacted to BTD. Meanwhile, based on a study by Lev and Nissim (2004), Weber (2009) performed an empirical analysis on whether analysts, the sophisticated participants in the capital market, appropriately reflect BTD in their earnings forecast. Weber (2009) found that BTD is positively associated with analysts' earnings forecast error and claimed that this result implies analysts misunderstand BTD.…”

Section: ⅱ Prior Studies and Hypotheses Developmentmentioning

confidence: 99%

“…In CTE/r, r stands for Korean statutory corporate tax rate and CTE is current tax expense that is computed in the following manner: tax expenses + changes in deferred tax assets − changes in deferred tax liabilities. The estimates of taxable income from financial statement disclosure are subject to some known estimation errors (Hanlon 2003;Weber 2009). However, since taxable income is not publicly available to market participants, estimation of taxable income would be the only way to capture real taxable income.…”

Section: ⅲ Research Design and Variable Measurementmentioning

confidence: 99%

“…According to prior literature, aggregate differences between book and taxable income vary over time (e.g., Plesko 2000; Hanlon and Shevlin 2005;Weber 2009), and thus it is important to ensure that time-specific macro level factors do not unduly influence results. Therefore, our analysis are based on decile ranks of BTD, denoted by rBTD.…”

Section: ⅲ Research Design and Variable Measurementmentioning

confidence: 99%

“…Moreover, Weber (2009) concluded from his empirical analysis of the U.S. firms that investors properly reflect BTD under a good information environment, while analysts overly reflect BTD in future earnings forecasts.…”

Section: ⅰ Introductionmentioning

confidence: 99%

“…Based on the finding that institutional investors have different systematic biases from normal investors and higher analyst following lowers systematic biases, this study suggests the evidence that analysts might help to alleviate investors' optimistic biases in interpreting BTD. Prior studies just examine investors with BTD (Lev and Nissim 2004) or analysts with BTD (Weber 2009). Therefore, this study might be a first attempt to compare empirically investors' and analysts' relative inefficiencies in interpreting BTD information when investors make investments or analysts release the future earnings forecasts.…”

Section: ⅰ Introductionmentioning

confidence: 99%

See 4 more Smart Citations

A Comparison of Investors’ and Analysts’ Biases in Interpreting Book-Tax Difference: Evidence from Korean Stock Market

Chun¹,

Shim²

2017

Glob Bus Financ Rev

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A B S T R A C TThis study examines and compares investors' and analysts' biases in interpreting book-tax difference (hereafter BTD). The empirical results of using 1,544 Korean firm-year observations from 2001 to 2008 are as follows. First, we find that BTD is negatively associated with the value-price (V/P) ratio. This result implies that investors have more optimistic biases than analysts do in interpreting BTD. Second, for high institutional ownership sample, the negative association between BTD and V/P ratio would disappear. This empirical result suggests that sophisticated institutional investors understand the meaning of BTD better than general investors. Third, for lower analyst following sample, there was no significant association between BTD and V/P ratios. This implies that higher analyst following reduces biases in analysts' earnings forecasts. This study adds to the growing body of evidence that is related to the efficiency of analysts' earnings forecasts. It is the first empirical study to show that investors do not fully incorporate the meaning of BTD into their stock pricing compared with analysts' earnings forecasts.

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Section: ⅱ Prior Studies and Hypotheses Developmentmentioning

confidence: 99%

Section: ⅲ Research Design and Variable Measurementmentioning

confidence: 99%

Section: ⅲ Research Design and Variable Measurementmentioning

confidence: 99%

Section: ⅰ Introductionmentioning

confidence: 99%

Section: ⅰ Introductionmentioning

confidence: 99%

See 3 more Smart Citations

A Comparison of Investors’ and Analysts’ Biases in Interpreting Book-Tax Difference: Evidence from Korean Stock Market

Chun¹,

Shim²

2017

Glob Bus Financ Rev

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Book‐Tax Differences, Corporate Governance Effectiveness and Audit Quality: An Interactive Effects

Riguen¹,

Kachouri²,

Jarboui³

2018

J Corp Accounting Finance

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In this article, we aim to answer the important questions of whether the corporate governance effectiveness affects the relationship between book‐tax differences (BTDs) and audit quality. We also aim to determine whether the variability between BTDs and audit quality is moderated by corporate governance index (CGI). The primary aim of the present study is to contribute to improving the existence of an interaction between BTDs, audit quality, and CGI. This study uses a sample of 28 nonfinancial listed Tunisian companies and covers an eight‐year period from 2005 to 2015. To test the hypotheses of this research, a generalized least squares (GLS) and ordinary least squares (OLS) regression was applied. The results obtained show that, for the Tunisian companies, a positive association between BTDs and audit quality. The current study also provides evidence that corporate governance moderates the relationship between BTDs and audit quality. The findings may be of interest to the academic researchers, practitioners and regulators who are interested in discovering the quality of corporate governance practices and tax practices in Tunisian context. The findings of this study can help Tunisian regulators in creating corporate governance disclosure requirements. The findings also provide the African business community insights concerning audit quality, tax practices, and corporate governance. This article extends the existing literature, by examining the inter‐relationship between corporate governance, BTDs, and audit quality. © 2019 Wiley Periodicals, Inc.

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Techniques of Increasing Comparability and Reliability of Reported Accounting Numbers: Some More Advanced Tools

Welc

2020

Reading Between the Lines of Corporate Financial Reports

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Do Analysts and Investors Fully Appreciate the Implications of Book‐Tax Differences for Future Earnings?*

Cited by 164 publications

References 65 publications

A Comparison of Investors’ and Analysts’ Biases in Interpreting Book-Tax Difference: Evidence from Korean Stock Market

A Comparison of Investors’ and Analysts’ Biases in Interpreting Book-Tax Difference: Evidence from Korean Stock Market

Book‐Tax Differences, Corporate Governance Effectiveness and Audit Quality: An Interactive Effects

Techniques of Increasing Comparability and Reliability of Reported Accounting Numbers: Some More Advanced Tools

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