Abstract

http://ssrn.com/abstract=2316314
 
 

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Valuation of Tax Expense


Jacob K. Thomas


Yale School of Management

Frank Zhang


Yale School of Management

August 26, 2013

Review of Accounting Studies, Forthcoming

Abstract:     
As tax expense reflects value lost to taxes paid, it should be negatively associated with value, provided non-tax, value-relevant information is controlled for. However, valuation regressions estimated in prior research — using contemporaneous tax expense and non-tax variables — document substantial variation in the coefficients on tax expense, ranging from significant negative to significant positive values. We show this variation is a) caused by the omission of expected future profitability, b) explained by many factors that cause variation in the correlations among included variables and omitted future profitability. Unfortunately, difficulties associated with separating the impact of individual factors hampers tax research investigating links between tax expense coefficients and specific factors.

Number of Pages in PDF File: 48

Keywords: Tax expense, stock returns, profitability, value relevance, valuation

JEL Classification: G12, G14, M41, H25

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Date posted: August 28, 2013  

Suggested Citation

Thomas, Jacob K. and Zhang, Frank, Valuation of Tax Expense (August 26, 2013). Review of Accounting Studies, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2316314

Contact Information

Jacob Kandathil Thomas
Yale School of Management ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
Frank Zhang (Contact Author)
Yale School of Management ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

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