Abstract

http://ssrn.com/abstract=1524298
 
 

References (31)



 
 

Citations (15)



 


 



Tax Avoidance, Large Positive Book-Tax Differences and Earnings Persistence


Bradley S. Blaylock


Oklahoma State University - Spears School of Business

Terry J. Shevlin


University of California-Irvine

Ryan J. Wilson


University of Oregon - Lundquist College of Business

March 29, 2010


Abstract:     
We investigate why book-tax temporary differences appear to serve as a useful signal of earnings persistence. We maintain that there are multiple potential sources of large positive book-tax differences and examine the differing implications of large positive book-tax differences for earnings and accruals persistence depending on the source of those differences. We expect and observe that firms with large positive book-tax differences likely arising from tax avoidance exhibit greater accruals persistence than other firms with large positive book-tax differences. We also expect and observe that firms with large positive book-tax differences likely arising from upward earnings management exhibit lower earnings and accruals persistence than other firms with large positive book-tax differences. Further, we provide evidence that investors are able to look through to the source of large positive book-tax differences allowing them to correctly price the persistence of accruals. Together, our results illustrate the importance of considering the source of book-tax differences when using them as a signal of earnings quality.

Number of Pages in PDF File: 54

Keywords: book-tax differences, earnings persistence, earnings quality, earnings expectations

JEL Classification: M41

working papers series





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Date posted: December 17, 2009 ; Last revised: March 18, 2014

Suggested Citation

Blaylock, Bradley S. and Shevlin, Terry J. and Wilson, Ryan J., Tax Avoidance, Large Positive Book-Tax Differences and Earnings Persistence (March 29, 2010). Available at SSRN: http://ssrn.com/abstract=1524298 or http://dx.doi.org/10.2139/ssrn.1524298

Contact Information

Bradley S. Blaylock
Oklahoma State University - Spears School of Business ( email )
430 Business Building
Stillwater, OK 74078
United States
Terry J. Shevlin (Contact Author)
University of California-Irvine ( email )
Paul Merage School of Business
Irvine, CA 92697-3125
United States
206-550-9891 (Phone)
Ryan J. Wilson
University of Oregon - Lundquist College of Business ( email )
1280 University of Oregon
Eugene, OR 97403
United States
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