Optimal tax depreciation with uncertain future cash-flows

Berg, Menachem; Waegenaere, Anja De; Wielhouwer, J.L.

doi:10.1016/s0377-2217(00)00132-6

Cited by 24 publications

(30 citation statements)

References 10 publications

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“…This variable is used to detect TM through tax options. Berg et al (2001) argue that firms can reduce the present value of the future tax payment through the choice of a particular method of depreciation among those admitted in the tax law.…”

Section:  Tax Management Measuresmentioning

confidence: 99%

The Difference between the Accounting Result and Taxable Income in Detecting Earnings Management and Tax Management: The Tunisian Case

Dridi¹,

Boubaker²

2015

IJBM

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In this study, we examine empirically whether the gap between the pre-tax income and the taxable income predicts simultaneously earnings management and tax management. Prior researches have begun to estimate several indictors of earnings quality. We extends this works by investigating whether the book-tax differences (BTD) provides information about managerial discretion. BTD can be used as an attribute of information quality and can contain incremental information for investors and users of financial reports of companies We compose a sample of 21 listed Tunisian firms over the 2003-2012 periods, we apply a statistical methodology implementing a linear panel regression. We develop a model in which we estimate abnormal BTD. All earnings and tax management activities are captures by our abnormal BTD indicator (ABTD). From this regression we are going to test the effect of the variables of the earnings and tax management on the ABTD variable. We find, as expected, a significant association between BTD and manager discretion proxies. Our results indicate that BTD contains a predictive power over the earnings and tax management. We find that Tunisian companies are concerned about tax reducing rather than improved information quality and increasing the financial result.

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Section:  Tax Management Measuresmentioning

confidence: 99%

The Difference between the Accounting Result and Taxable Income in Detecting Earnings Management and Tax Management: The Tunisian Case

Dridi¹,

Boubaker²

2015

IJBM

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“…Then, we use these recursive relationships to investigate the effect of discounting (i.e., the time value of money) on the optimal depreciation strategy. We show that, as in the static setting considered in Berg et al (2001), stronger discounting (i.e., a lower discount factor) works in favor of more accelerated methods. We then first numerically illustrate the basic tradeoffs that occur in settings without carry over of losses.…”

Section: Introductionmentioning

confidence: 73%

“…A summary of the early literature can be found in Rueckle (1983). More recent literature extends the early work by allowing for uncertain future cash flows, reinvestments, and/or progressive tax structures, and shows that it is no longer necessarily the case that the most accelerated method is preferred (Berg et al 2001;Berg and Moore 1989;De Waegenaere and Wielhouwer 2002;Dedner et al 1980;Kromschroder 1984;Kunkel 1992;Wielhouwer et al 2002).…”

Section: Introductionmentioning

confidence: 88%

“…It is well-known that the option to carry over losses decreases the present value of tax payments, and that if losses can compensate profits over the whole depreciable life of the asset, it is always optimal to use the most accelerated method. However, when the number of years that losses can be carried forward is limited, it is not necessarily the case that the most accelerated method is optimal (see Berg et al 2001). This suggests that the option to change depreciation method can also be valuable in these settings.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Dynamic Tax Depreciation Strategies

Waegenaere¹,

Wielhouwer

2008

SSRN Journal

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The tax depreciation decision potentially has significant impact on the profitability of firms and projects. Indeed, the depreciation method chosen for tax purposes affects the timing of tax payments, and, as a consequence, it also affects the after-tax net present value of investment projects. Previous research focusses on the optimal choice of depreciation method under the assumption that the depreciation method has to be set ex ante and cannot be changed during the useful life of the asset. However, several countries allow changes of depreciation method under certain circumstances. This paper develops a dynamic programming approach to determine the firm's optimal choice with regard to the initial depreciation method, and whether changes of method are proposed in later periods.

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“…Jackson et al (2009) examined the economic consequences of choosing certain depreciation methods for companies. Berg et al (2001) presented a method for optimization of tax depreciation under uncertainty conditions of future cash flows. They compared Sum of year digits (SOYD), double declining balance (DDB), (SLDM) and (ADM) depreciation methods and examined the effects of factors such as discount rate, future cash flow rate and tax system structure on the choice of optimal depreciation method.…”

Section: Literature Reviewmentioning

confidence: 99%