The Valuation of Deferred Taxes*

Abstract

We examine the value relevance of deferred tax components disclosed under SFAS No. 109. We classify deferred tax components into seven categories: depreciation and amortization; losses and credits carried forward; restructuring charges; environmental charges; employee benefits; valuation allowance required hy SFAS No. 109; and all other components. We find that separating deferred taxes into components provides value relevant information. In particular, the valuation coefficient on deferred tax liabilities from depreciation and amortization is close to zero, reflecting investors' expectations that firms will continue to invest in depreciable assets reducing the probability of future reversal. Also, deferred taxes from restructuring charges have valuation coefficients larger than other deferred tax components, reflecting the higher likelihood of reversal in the short run. Finally, we find that the net realizable value of deferred taxes from losses and credits carried forward is negatively associated with stock prices. This result suggests that investors do not expect part of these carryforwards to he utilized, although we cannot rule out the possibility that model misspecification is driving this result. CondenseLes impots report6s resultent de l'ecart entre l'impot exigible et la charge constatee au titre des impots de l'exercice. II n'y a done d'impots reportes que lorsque les normes d'information financiere different des exigences en matifere d'information fiscale. II arrive souvent que les utilisateurs des etats financiers ne s'entendent pas sur la methode la plus appropriee pour evaluer une societe dont le hilan contient des impots reportes actifs et passifs. Certains sont d'avis que les impots reportes nets representent des obligations financieres et, par cons6quent, que leur valeur doit etre actualis6e de la meme maniere que les autres obligations financieres a long terme. D'autres invoquent le fait qu'il est frequent que les impots reportes passifs (resultant, par exemple, d'ecarts temporels lies a l'amortissement) ne soient jamais regies, de sorte que la valeur comptable de l'avoir des actionnaires de l'entreprise devrait etre augmentee des impots reportes passifs nets (et diminuee des impots report6s actifs nets). La majorite des utilisateurs des etats financiers paraissent cependant r6agir a la complexite du probleme en ignorant carrement les impots report6s. Les auteurs se donnent pour objectif de proposer un cadre de rdfdrence simple permettant de comprendre le role des impots report6s nets, et des 616ments qui les composent, dans I'fitablissement de la valeur de I'entreprise. Us d6tnontrent aussi que Tinformation relative aux impots report6s foumie aux termes du SFAS n° 109 est pertinente £i r^tablissement de cette valeur. Us examinent plus pr^cisement si revaluation des 616-ments d'impot report6 d6pend de la probabilit6 de r6sorption. A partir de I'information foumie sur les 616ments d'impot report6, conform6ment aux exigences du SFAS n° 109, ils 6valuent la probabilit6 de r6sorption de chaque 616m...

Attribute differences between U.S. GAAP and IFRS earnings: An exploratory study

“…Research into the incremental information content of alternative firm performance measures is one example, with measures such as comprehensive income versus net income (Dhaliwal et al 1999), cash flows and accruals (Pfeiffer et al 1998), cash flow from operations versus investing and financing cash flow (Cheng et al 1997, Black 1998 or diluted versus other EPS measures (Balsam and Lipka 1998). Others have looked at the usefulness of disclosing information in the notes of the financial statements, like details on deferred tax components (Amir et al 1997;Ayers 1998) or on employee compensations (Aboody 1996;Amir 1996;Rees and Stott 2001), fair value estimates of investment securities and derivatives for banks (Barth 1994;Barth and Clinch 1996;Venkatachalam 1996) … A second stream of research evaluates the accounting standards as a whole (e.g., US GAAP standards) by comparing them to other standard regimes (e.g. German GAAP).…”

A review of tax research

“…Proponents claim benefits such as reduced compliance costs, a broader base 29 Common examples are Bethlehem Steel's 2001 valuation allowance increase (see Weil and Liesman, 2001) and GM's valuation allowance increase of $39 billion in 2008 (Green and Bensinger, 2007). 30 Prior studies document a relation between valuation allowance changes and contemporaneous stock prices (e.g., Amir et al, 1997;Ayers, 1998;and Amir and Sougiannis, 1999). 31 Other countries have either moved away from a conformed system or more toward a conformed system over time.…”

Influence of Rules for Computing Corporate Income Tax on the Accuracy of Financial Statements of Lithuanian Companies

“…Beaver and Dukes (1972) are among the first to pioneer a study proposing that deferred tax items may be value relevant for investors. Some studies examine the relevance of the timing of the reversal of differences between accounting and taxation regulations that give rise to deferred taxes (Amir et al, 1997;Barth, 2000;Citron, 2001;Chaney and Jeter, 1994;Chang et al, 2009;Sansing, 2000, 2004;Lynn et al, 2008;Wong et al, 2011;Hanlon et al, 2014;Hennig et al, 2010Hennig et al, , 2013. Amir et al (1997) classify deferred tax components into seven categories: depreciation and amortization; losses and credits carried forward; restructuring charges; environmental charges; employee benefits; valuation allowance required; and all other components.…”