Taxable income, future earnings, and equity values

Accounting Review

Volumn 79, Issue 4, 2004, Pages 1039-1074

  Lev, Baruch ^a   Nissim, Doron ^b  

^a NEW YORK UNIVERSITY   (United States)

^b Columbia University ^*  (United States)

Author keywords

Deferred taxes; Earnings management; Earnings quality; Market efficiency; Taxable income

Indexed keywords

EID: 8744318686     PISSN: 00014826     EISSN: None     Source Type: Journal    
DOI: 10.2308/accr.2004.79.4.1039     Document Type: Review

References (61)

1. Ayers, B. C., C. E. Lefanowicz, and J. R. Robinson. 2000. The effects of goodwill tax deductions on the market for corporate acquisitions. The Journal of the American Taxation Association 22 (Supplement): 34-50.
2. Beaver, W., and D. Morse. 1978. What determines price-earnings ratios? Financial Analysts Journal 34 (4): 65-76.
3. Beneish, M. D., and M. E. Vargus. 2002. Insider trading, earnings quality, and accrual mispricing. The Accounting Review 77 (4): 755-791.
4. Browning, B. 1997. Maximizing R&D write-offs to reduce goodwill. Mergers and Acquisitions 32 (2): 29-30.
5. Burgstahler, D., W. B. Elliott, and M. Hanlon. 2002. How firms avoid losses: Evidence of the use of the net deferred tax asset account. Working paper, University of Washington.
6. Business Week. 2002. Tax dodging: Enron isn't alone. (March 4).
7. Chan, L. K. C., J. Karceski, and J. Lakonishok. 2003. The level and persistence of growth rates. Journal of Finance 58 (2): 643-684.
8. Chaney, P. K., and D. C. Jeter. 1994. The effect of deferred taxes on security prices. Journal of Accounting, Auditing and Finance 9 (1): 91-116.
9. Cloyd, C. B., J. Pratt, and T. Stock. 1996. The use of financial accounting choice to support aggressive tax positions: Public and private firms. Journal of Accounting Research 34 (1): 23-43.
10. Collins D., and P. Hribar. 2000. Earnings-based and accrual-based market anomalies: One effect or two? Journal of Accounting and Economics 29 (1): 101-123.
11. -, and -. 2002. Errors in estimating accruals: Implications for empirical research. Journal of Accounting Research 40 (1): 105-134.
12. Dechow, P. 1994. Accounting earnings and cash flows as measures of firm performance: The role of accounting accruals, Journal of Accounting and Economics 18 (1): 3-42.
13. Desai, M. A. 2002. The Corporate Profit Base, Tax Sheltering Activity, and the Changing Nature of Employee Compensation. NBER Working Paper #8866. Cambridge, MA: NBER.
14. Desai, H., S. Rajgopal, and M. Venkatachalam. 2002. Value-glamour and accruals mispricing: One anomaly or two? Working paper, University of Washington.
15. Dhaliwal, D. S., D. A. Guenther, and M. A. Trombley. 1999. Inventory accounting method and earnings-price ratios. Contemporary Accounting Research 16 (3): 419-436.
16. -, C. A. Gleason, and L. F. Mills. 2002. Last chance earnings management: Using the tax expense to achieve earnings targets. Working paper, The University of Arizona.
17. Erickson, M., M. Hanlon, and E. Maydew. 2004. How much will firms pay for earnings that do not exist? Evidence of taxes paid on allegedly fraudulent earnings. The Accounting Review 79 (2): 387-408.
18. Elliott, J., and D. Hanna. 1996. Repeated accounting write-offs and the information content of earnings. Journal of Accounting Research 34 (Supplement): 135-155.
19. Fama, E. F., and K. R. French. 1992. The cross-section of expected stock returns. Journal of Finance 47 (2): 427-465.
20. -, and -. 2000. Forecasting profitability and earnings. Journal of Business 73: 161-175.
21. Forbes. 2002. Two birds, one stone. (March 4).
22. Francis, J., J. D. Hanna, and L. Vincent. 1996. Causes and effects of discretionary asset write-offs. Journal of Accounting Research 34 (Supplement): 117-134.
23. Frank, M. M., and S. O. Rego. 2003. Do managers use the valuation allowance account to manage earnings around certain earnings targets? Working paper, University of Virginia.
24. Gleason, C., and L. Mills. 2002. Materiality and contingent tax liability reporting. The Accounting Review 77 (2): 317-342.
25. Graham, J. R., and C. Smith. 1999. Tax incentives to hedge. Journal of Finance 54 (6): 2241-2262.
26. Gupta, S., and K. Newberry. 1997. Determinants of the variability in corporate effective tax rates: Evidence from longitudinal data. Journal of Accounting and Public Policy 16 (1): 1-34.
27. Hanlon, M., and T. Shevlin. 2002. Accounting for tax benefits of employee stock options and implications for research. Accounting Horizons 16 (1): 1-16.
28. -. 2003. What can we infer about a firm's taxable income from its financial statements? National Tax Journal 56 (4): 831-864.
29. -. 2005. The persistence and pricing of earnings, accruals, and cash flows when firms have large book-tax differences. The Accounting Review (forthcoming).
30. Henning, S. L., and W. H. Shaw. 2000. The effect of the tax deductibility of goodwill on purchase price allocations. The Journal of the American Taxation Association 22 (1): 18-37.
31. Huson, M. R., T. W. Scott, and H. A. Wier. 2001. Earnings dilution and the explanatory power of earnings for returns. The Accounting Review 76 (4): 589-612.
32. Jennings, R., M. J. Leclere, and R. B. Thompson. 2001. Goodwill amortization and the usefulness of earnings. Financial Analysts Journal 57 (5): 20-28.
33. Joos, P., J. Pratt, and S. Young. 2002. Using deferred taxes to infer the quality of accruals. Working paper, Massachusetts Institute of Technology.
34. Kennedy, D., J. Lakonishok, and W. H. Shaw. 1992. Accommodating outliers and nonlinearity in decision models. Journal of Accounting, Auditing and Finance 7 (2): 161-193.
35. Krull, L. 2004. Permanently reinvested earnings, taxes, and earnings management. The Accounting Review 79 (3): 745-767.
36. Lee, C. 1988. Inventory accounting and earnings/price ratios: A puzzle. Contemporary Accounting Research 5 (1): 371-388.
37. Lev, B., and R. Thiagarajan. 1993. Fundamental information analysis. Journal of Accounting Research 31 (2): 190-215.
38. -, and P. Zarowin. 1999. The boundaries of financial reporting and how to extend them. Journal of Accounting Research 37 (2): 353-386.
39. Liu, J., D. Nissim, and J. Thomas. 2003. International equity valuation using multiples. Working paper, Columbia University.
40. Manzon, G. B., and G. A. Plesko. 2002. The relation between financial and tax reporting measures of income. The Law Review 55: 175-214.
41. McGill, G., and E. Outslay. 2002. Did Enron pay taxes? Using accounting information to decipher tax status. Tax Notes (August 19).
42. McGoldrick, B. 1997. Goodwill games. Institutional Investor (March): 145-149.
43. Mills, L., and K. Newberry. 2001. The influence of tax and non-tax costs on book-tax reporting differences: Public and private firms. The Journal of the American Taxation Association 23 (1): 1-19.
44. -, -, and W. B. Trautman. 2002. Trends in book-tax income and balance sheet differences. Tax Notes (August 19): 1109-1124.
45. -, and G. Plesko. 2003. Bridging the reporting gap: A proposal for more informative reconciling of book and tax income. National Tax Journal 56 (4): 865-893.
46. Nelson, M. W., J. A. Elliott, and R. L. Tarpley. 2003. How are earnings managed? Examples from auditors. Accounting Horizons (Supplement): 17-35.
47. Omer, T., K. Molloy, and D. Ziebart. 1991. Using financial statement information in the measurement of corporate tax rates. The Journal of the American Taxation Association 13 (1): 57-72.
48. Patrick, K. A. 2001. Comparing NIPA profits with S&P 500 profits. Survey of Current Business (April): 16-20.
49. Penman, S. H. 1992. Financial statement information and the pricing of earnings changes. The Accounting Review 67 (3): 563-577.
50. Phillips, J., M. Pincus, and S. Rego. 2002. Earnings management: New evidence based on deferred tax expense. The Accounting Review 78 (2): 491-521.
51. Revsine, L., D. W., Collins, and W. B. Johnson. 1999. Financial Reporting and Analysis. Upper Saddle River, NJ: Prentice Hall, Inc.
52. Roychowdhury, S. 2002. Management of earnings through the manipulation of real activities that affect cash flow from operations. Working paper, Massachusetts Institute of Technology.
53. Schmidt, A. P. 2004. The persistence, forecasting ability, and valuation implications of the tax change component of earnings. Working paper, Columbia University.
54. Scholes, M., M. Wolfson, M. Erickson, E. Maydew, and T. Shevlin. 2002. Taxes and Business Strategy: A Planning Approach. 2nd edition. Upper Saddle River, NJ: Prentice Hall.
55. Schrand, C., and M. H. F. Wong. 2003. Earnings management using the valuation allowance for deferred tax assets under SFAS No. 109. Contemporary Accounting Research 20: 579-611.
56. Senate Committee on Finance. 2003. Report of Investigation of Enron Corporation and Related Entities Regarding Federal Tax and Compensation Issues, and Policy Recommendations. Washington, D.C.: Government Printing Office.
57. Shackelford, D., and T. Shevlin. 2001. Empirical tax research in accounting. Journal of Accounting and Economics 31 (1-3): 321-387.
58. Shevlin, T. 2002. Corporate tax shelters and book-tax differences. The Law Review 55: 427-443.
59. Sloan, R. G. 1996. Do stock prices fully reflect information in accruals and cash flows about future earnings? The Accounting Review 71 (3): 289-315.
60. White, G., A. Sondhi, and D. Fried. 1998. The Analysis and Use of Financial Statements. 2nd edition. New York, NY: John Wiley & Sons.
61. Zarowin, P. 1990. What determines earnings-price ratios: Revisited. Journal of Accounting, Auditing & Finance 5 (3): 439-457.