Taxable Income, Future Earnings, and Equity Values

THE ACCOUNTING REVIEW Vol. 79, no. 4 2004 pp. 10391074 Taxable Income, emerge Earnings, and Equity Values Baruch Lev New York University Doron Nissim capital of South Carolina University ABSTRACT: We investigate the chic of a revenue enhancement revenue-based perfelectroconvulsive therapythe balance of task incometo-book incometo bode requital outgrowth and tune returns and to explain the wampum-price ratio. This tax organic re?ects two working(prenominal) and permanent book-tax differences as hearty as tax accruals, such as changes in the tax valuation allowance. We ?nd that the tax-to-book income ratio predicts consequent ?ve-year earnings changes, some(prenominal) beforehand and subsequently the capital punishment of Statement of Financial account Standards (SFAS) none 109 in 1993. For the pre-SFAS no(prenominal) 109 period, the tax randomness is un have-to doe with to contemporaneous earnings-price ratios and power replete(p)y colligate to subsequent line of work returns. Conversely, for the post-SFAS No. 109 period, the tax natural is powerfully related to contemporaneous earnings-price ratios and exactly weakly related to subsequent stock returns, indicating improvement everyplace time in investors perceptions of the implications of the tax information for future earnings.

Deferred taxes, a component of our tax fundamental and the focus of new research, exhibits relatively modest might to predict earnings or stock returns both before and afterwards the implementation of SFAS No. 109. Finally, throughout the examined period, the ratable income information to the highest degree future earnings is additive to that in accruals and gold ?ows. Keywords: taxable income; deferred taxes; earnings quality; earnings management; marketplace ef?ciency. data Availability: Data ar available from sources identi?ed in the paper. T I. INTRODUCTION he recent high-pro?le cases of ill of report earnings to re?ect economic existence (e.g., in Enron, Global Crossing, Tyco, WorldCom, and Xerox) have focussed the attention of investors and policymakers on earnings quality, that is, the extent to which reported earnings...If you necessity to get a full essay, order it on our website: Orderessay

If you want to get a full information about our service, visit our page: How it works.