Earnings Management: New Evidence Based On Deferred Tax Expense

Phillips, John D.; Pincus, Morton; Rego, Sonja O.

doi:10.2139/ssrn.276997

Cited by 208 publications

(306 citation statements)

References 24 publications

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“…For example, Phillips et al (2003) document that firms that report small positive earnings have a larger deferred tax expense consistent with these firms managing financial reporting income upward to meet the target but not reporting the additional income for tax purposes. Mills and Newberry (2001) report evidence consistent with the magnitude of book-tax differences being positively associated with financial reporting incentives such as prior earnings patterns, financial distress, and bonus thresholds.…”

Section: Book-tax Differences Proxy For Audit Riskmentioning

confidence: 99%

“…12 Again, this helps us to decipher whether the information in the book-tax differences is about pre-tax accruals (e.g., warranty reserve) or solely about earnings management through the tax accounts. We use the logged absolute value of the firm's reported deferred tax expense as our estimate of the firm's temporary book-tax differences (similar to Hanlon 2005, Phillips et al 2003, and others).…”

Section: Book-tax Differencesmentioning

confidence: 99%

“…A number of studies compare firms whose scaled earnings fall in the 0.00 to 0.005 band to those in the -0.005 to 0.0 band, suggesting that just achieving a profit is evidence of earnings management (Phillips et al 2003 and other studies).…”

Section: Effects Of Earnings Targetsmentioning

confidence: 99%

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Audit Fees and Book-Tax Differences

Hanlon¹,

Krishnan²,

Mills³

2012

Journal of the American Taxation Association

107

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We investigate whether book-tax differences are associated with higher audit fees, a proxy for auditor risk assessments and auditor effort. Our evidence suggests that there is a significantly positive relation. Further, this association is larger for firms that appear to have managed earnings (i.e., have high accruals) relative to those that are tax avoiders (i.e., have low cash effective tax rates). Our evidence is consistent with large book-tax differences representing an observable proxy for earnings management that is associated with auditor decisions. Our study contributes to capital market research that examines audit fees, as well as other research that examines the usefulness of book-tax differences for market participants.

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Section: Book-tax Differences Proxy For Audit Riskmentioning

confidence: 99%

Section: Book-tax Differencesmentioning

confidence: 99%

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Audit Fees and Book-Tax Differences

Hanlon¹,

Krishnan²,

Mills³

2012

Journal of the American Taxation Association

107

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“…5 Given a measure of income separate from that reported to shareholders, booktax differences, and its components, have been used to address a number of accounting issues, such as the quality of accruals (Joos et al 2002), tax shelters (Plesko, 2000b;Manzon and Plesko, 2002;Desai, 2003) the persistence of financial accounting earnings, (Hanlon, 2003a), earnings management (Phillips et al, 2003), and accounting conservatism (Watts, 2003).…”

Section: Book-tax Differences and Financial Reportingmentioning

confidence: 99%

Corporate Tax Avoidance and the Properties of Corporate Earnings

Plesko¹

2004

National Tax Journal

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“…Using the U.S firms as a sample, Phillips, Pincus, and Rego (2003) reported that BTD is a sophisticated measurement that helps finding earnings management behavior. It is also found that BTD is significantly associated with earnings persistence and quality in a sense that it provides useful information about firms' future performance (Hanlon 2005).…”

Section: ⅱ Prior Studies and Hypotheses Developmentmentioning

confidence: 99%

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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Earnings Management: New Evidence Based On Deferred Tax Expense

Cited by 208 publications

References 24 publications

Audit Fees and Book-Tax Differences

Audit Fees and Book-Tax Differences

Corporate Tax Avoidance and the Properties of Corporate Earnings

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

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