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Determinants of the Valuation Allowance for Deferred Tax Assets Under SFAS No. 109

Posted: 3 Aug 1998  

Gregory S. Miller

University of Michigan, Stephen M. Ross School of Business

Douglas J. Skinner

The University of Chicago - Booth School of Business

Abstract

This paper explores the determinants of the valuation allowance for deferred tax assets under SFAS No. 109. We find that, consistent with SFAS No. 109, the allowance is larger for firms with relatively more deferred tax assets and smaller for firms with higher levels of expected future taxable income. The most important explanatory variable for the valuation allowance is the level of firms' tax credit and tax loss carryforwards, consistent with these items being more difficult to realize. We find little evidence that managers use the valuation allowance for earnings management purposes, although these tests may not be very powerful.

JEL Classification: M41, M43, M44

Suggested Citation

Miller, Gregory S. and Skinner, Douglas J., Determinants of the Valuation Allowance for Deferred Tax Assets Under SFAS No. 109. The Accounting Review, Vol 73, No 2, April 1998. Available at SSRN: https://ssrn.com/abstract=112188

Gregory S. Miller

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Douglas J. Skinner (Contact Author)

The University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7137 (Phone)

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