Taxable Income as a Performance Measure: The Effects of Tax Planning and Earnings Quality

Posted: 27 Oct 2008 Last revised: 21 Oct 2010

See all articles by Benjamin C. Ayers

Benjamin C. Ayers

University of Georgia

John (Xuefeng) Jiang

Michigan State University - Department of Accounting & Information Systems

Stacie Kelley Laplante

University of Wisconsin - Madison

Multiple version iconThere are 2 versions of this paper

Date Written: October 24, 2008

Abstract

Extant research suggests that book-tax differences are useful measures in evaluating firm performance. There is little evidence, however, regarding taxable income as an alternative performance measure to book income. We examine firm characteristics that mitigate or enhance the ability of taxable income to inform investors regarding firm performance. We find that the relative and incremental information content of estimated taxable income to book income is lower for high tax planning firms and higher for low earnings quality firms. Our results suggest that tax planning and low earnings quality have contrasting effects on the information content of estimated taxable income. These findings are pertinent to recent research examining book-tax differences as a measure of earnings quality and taxable income as an alternative performance measure.

Keywords: taxable income, book income, information content, tax planning, earnings quality

JEL Classification: G38, H25, H32, M41, M44

Suggested Citation

Ayers, Benjamin C. and Jiang, John (Xuefeng) and Laplante, Stacie Kelley, Taxable Income as a Performance Measure: The Effects of Tax Planning and Earnings Quality (October 24, 2008). Contemporary Accounting Research, Vol. 26, No.1, pp. 1-44, 2009. Available at SSRN: https://ssrn.com/abstract=1289402

Benjamin C. Ayers

University of Georgia ( email )

Athens, GA 30602
United States
706-542-3772 (Phone)
706-542-3630 (Fax)

John (Xuefeng) Jiang (Contact Author)

Michigan State University - Department of Accounting & Information Systems ( email )

270 North Business Complex
East Lansing, MI 48824-1034
United States
517-432-3031 (Phone)
517-432-1101 (Fax)

HOME PAGE: http://www.msu.edu/~jiangj/

Stacie Kelley Laplante

University of Wisconsin - Madison ( email )

975 University Avenue
Madison, WI 53706
United States
608-265-3494 (Phone)
608-265-3494 (Fax)

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