The persistence and pricing of earnings, accruals, and cash flows when firms have large book-tax differences

Accounting Review

Volumn 80, Issue 1, 2005, Pages 137-166

  Hanlon, Michelle ^a  

^a UNIVERSITY OF MICHIGAN   (United States)

Author keywords

Accruals; Book tax differences; Earnings expectations; Earnings persistence

Indexed keywords

EID: 13844266626     PISSN: 00014826     EISSN: None     Source Type: Journal    
DOI: 10.2308/accr.2005.80.1.137     Document Type: Review

References (60)

1. Barth, M., and A. Hutton. 2004. Analyst earnings forecast revisions and the pricing of accruals. Review of Accounting Studies 9 (March): 59-96.
2. Basu, S. 1977. Investment performance of common stocks in relation to their price-earnings ratios: A test of the efficient market hypothesis. Journal of Finance 31 (June): 663-682.
3. Bernard, V., and J. Thomas. 1990. Evidence that stock prices do not fully reflect implications of current earnings for future earnings. Journal of Accounting and Economics 13: (December): 305-340.
4. Bradshaw, M., S. Richardson, and R. Sloan. 2001. Do analysts and auditors use the information in accruals? Journal of Accounting Research 39 (June): 45-74.
5. Burgstahler, D., and I. Dichev. 1997. Earnings management to avoid earnings decreases and losses. Journal of Accounting and Economics 24 (December): 99-126.
6. _, J. Jiambalvo, and T. Shevlin. 2002. Do stock prices fully reflect the implications of special items for future earnings? Journal of Accounting Research 14 (June): 585-612.
7. Chaney, P., and D. Jeter. 1994. The effect of deferred taxes on security prices. Journal of Accounting, Auditing and Finance 9 (Winter): 71-116.
8. Collins, D., and P. Hribar. 2002. Errors in estimating accruals: Implications for empirical research. Journal of Accounting Research 40 (March): 105-134.
9. Dechow, P. 1994. Accounting earnings and cash flows as measures of firm performance: The role of accounting accruals. Journal of Accounting and Economics 18 (July): 3-42.
10. _, and R. Sloan. 1997. Returns to contrarian investment strategies: Tests of naïve expectation hypotheses. Journal of Financial Economics 43: 3-27.
11. _, S. P. Kothari, and R. Watts. 1998. The relation between earnings and cash flows. Journal of Accounting and Economics 25 (May): 133-168.
12. Fairfield, P., S. Whisenant, and T. Yohn. 2003. The differential persistence of accruals and cash flows for future operating income versus future profitability. Review of Accounting Studies 8 (June-September): 221-243.
13. Fama, E., and J. MacBeth. 1973. Risk, return, and equilibrium: Empirical tests. Journal of Political Economy 81 (May/June): 607-636.
14. _, and K. French. 1992. The cross-section of expected stock returns. Journal of Finance 47 (June): 427-466.
15. Financial Accounting Standards Board (FASB). 1980. Qualitative Characteristics of Accounting Information. Statement of Financial Accounting Concepts No. 2. Stamford, CT: FASB.
16. _. 1987. Statement of Cash Flows. Statement of Financial Accounting Standards No. 95. Norwalk, CT: FASB.
17. _. 1992. Accounting for Income Taxes. Statement of Financial Accounting Standards No. 109. Norwalk, CT: FASB.
18. Frankel, R., and C. Lee. 1998. Accounting valuation, market expectation, and cross-sectional stock returns. Journal of Accounting and Economics 25 (June): 283-321.
19. Freeman, R., J. Ohlson, and S. Penman. 1982. Book rate-of-return and prediction of earnings changes: An empirical investigation. Journal of Accounting Research 20 (Autumn): 3-42.
20. Graham, J., C. Harvey, and S. Rajgopal. 2004. The economic implications of corporate financial reporting. Working paper, Duke University, NBER, and the University of Washington.
21. Grassley, C. E. 2002. Senator Grassley calls for review of corporate return disclosure requirements. Tax Notes Today (October 11).
22. Guenther, D. 1994. Earnings management in response to corporate tax rate changes: Evidence from the 1986 Tax Reform Act. The Accounting Review (January): 230-243.
23. _, E. Maydew, and S. Nutter. 1997, Financial reporting, tax costs, and book-tax conformity. Journal of Accounting and Economics 23 (November): 225-248.
24. Hanlon, M., and T. Shevlin. 2002. The accounting for the tax benefits of employee stock options and implications for research. Accounting Horizons 16 (March): 1-16.
25. _. 2003. What can we infer about a firm's taxable income from its financial statements? National Tax Journal 56 (December): 831-864.
26. Jagadeesh, N., and S. Titman. 1993. Returns to buying winners and selling losers: Implications for stock market efficiency. Journal of Finance 48 (March): 65-91.
27. Jonas, G., and J. Blanchet. 2000. Assessing quality of financial reporting. Accounting Horizons 14 (3): 353-363.
28. Jones, J. 1991. Earnings management during import relief investigations. Journal of Accounting Research 29 (2): 193-228.
29. Joos, P., J. Pratt, and D. Young. 2000. Book-tax differences and the value relevance of earnings. Working paper, Massachusetts Institute of Technology, Indiana University, and INSEAD.
30. KPMG Peat Marwick. 1992. Accounting for Income Taxes. An Analysis of FASB Statement 109. Montvale, NJ: KPMG.
31. Kraft, A., A. Leone, and C. Wasley. 2001. On the use of Mishkin's rational expectations approach to testing efficient-markets hypotheses in accounting research. Working paper, University of Rochester.
32. Lev, B., and D. Nissim. 2004. Taxable income, future earnings, and equity values. The Accounting Review (October): 1039-1074.
33. Manzon, G. 1992. Earnings management of firms subject to the alternative minimum tax. The Journal of the American Taxation Association 14 (Fall): 88-111.
34. _, and G. Plesko. 2002. The relation between financial and tax reporting measures of income. Tax Law Review 55.
35. Maydew, E. 1997. Tax-induced earnings management by firms with net operating losses. Journal of Accounting Research 35 (Spring): 83-96.
36. Mills, L. 1998. Book-tax differences and Internal Revenue Service adjustments. Journal of Accounting Research (Autumn): 343-356.
37. _, and K. Newberry. 2001. The influence of tax and non-tax costs on book-tax reporting differences: Public and private firms. The Journal of American Taxation Association 23 (Spring): 1-19.
38. _, _, and G. Novack. 2003. How well do Compustat NOL data identify firms with U.S. tax loss carryovers? The Journal of the American Taxation Association 25 (Fall): 1-18.
39. Mishkin, F. 1983. A Rational Expectations Approach to Macroeconometrics: Testing Policy Effectiveness and Efficient Markets Models. Chicago, IL: University of Chicago Press for the National Bureau of Economic Research.
40. Novack, J., and L. Saunders. 1998. The hustling of corporate tax shelters. Forbes (December 14): 198-208.
41. Ohlson, J. 1995. Earnings, book values, and dividends in equity valuation. Contemporary Accounting Research (Spring): 661-687.
42. Palepu, K., J. Healy, and V. Bernard. 2000. Business Analysis and Valuation. Using Financial Statements. Cincinnati, OH: South-Wcstern College Publishing.
43. Penman, S. 2001. Financial Statement Analysis and Security Valuation. New York, NY: McGraw-Hill Irwin.
44. Phillips, J., M. Pincus, and S. Rego. 2003. Earnings management: New evidence based on the deferred tax expense. The Accounting Review 178 (April): 491-522.
45. _, _, _, and H. Wan. 2004. Decomposing changes in deferred tax assets and liabilities to isolate earnings management activities. The Journal of American Taxation Association 26 (Supplement): 43-66.
46. Reason, T. 2002. Align the books? CFO Magazine (November 1).
47. Revsine, L., D. Collins, and W. B. Johnson. 1999. Financial Reporting and Analysis. Upper Saddle River, NJ: Prentice Hall.
48. Roychowdhury, S. 2003. Management of earnings through the manipulation of real activities that affect cash flow from operations. Working paper, Massachusetts Institute of Technology.
49. Schipper, K., and L. Vincent. 2002. Earnings quality. Working paper, Financial Accounting Standards Board and Northwestern University.
50. Schmidt, A. 2003. The persistence, forecasting ability, and valuation implications of the tax change components of earnings. Working paper, The University of Arizona.
51. Scholes, M., M. Wolfson, M. Erickson, E. Maydew, and T. Shevlin. 2002. Taxes and Business Strategy: A Planning Approach. Second edition. Upper Saddle River, NJ: Prentice Hall.
52. Seida, J. 2003. Enron: The Joint Committee on Taxation's Investigative Report. Testimony before the Senate Committee on Finance (108th Congress - First Session) S. Hrg. 108-117 (February 13).
53. Shumway, T. 1997. The delisting bias in CRSP data. Journal of Finance 52: 327-340.
54. _, and V. A. Walther. 1999. The delisting bias in CRSP's Nasdaq data and its implication for the size effect. Journal of Finance 54: 2361-2379.
55. Sloan, R. 1996. Do stock prices fully reflect information in accruals and cash flows about future earnings? The Accounting Review 71 (July): 289-315.
56. U.S. Department of Treasury. 1999. The Problem of Corporate Tax Shelters: Discussion, Analysis and Legislative Proposals. July. Washington, D.C.: Governmental Printing Office.
57. Wahlen, J. 2002. Discussion of "Do stock prices of property casualty insurers fully reflect information about earnings, accruals, cash flow and development?" Review of Accounting Studies 6: 221-228.
58. Watts, R., and J. Zimmerman. 1986. Positive Accounting Theory. Englewood Cliffs, NJ: Prentice Hall.
59. Weisman, J. 2002. At firms, dual profit pictures: The gap grows between what's earned and what's taxed. The Washington Post (October 10): A01.
60. Xie, H. 2001. The mispricing of abnormal accruals. The Accounting Review 76 (July): 357-373.