Empirical Evidence on the Impact of Book-Tax Differences on Divergence of Opinion Among Investors

Journal of the American Taxation Association, Vol. 33, No. 1, 2011

Posted: 8 Sep 2010 Last revised: 29 Sep 2017

See all articles by Joseph Comprix

Joseph Comprix

Syracuse University

Roger C. Graham

Oregon State University

Jared A. Moore

Western Washington University

Date Written: August 17, 2010

Abstract

It is well known that the objectives of financial accounting and tax accounting sometimes conflict, resulting in book-tax differences (BTDs). In this study we test for associations between measures of BTDs and measures of market participants’ uncertainty regarding the information conveyed in financial reports. The measures of market participant uncertainty are: (1) share turnover, (2) analyst forecast dispersion, and (3) stock return variance. We find positive associations between levels and variability of total BTDs and the three measures. After disaggregating BTDs into their permanent and temporary components, we find that both are positively associated with market uncertainty, although the permanent component of BTDs is generally more strongly and consistently associated with measures of uncertainty than is the temporary component. We interpret these results, in part, as indicative of the possible effect of uncertainty contained in BTDs, especially permanent BTDs, on the precision of the information conveyed in the financial statements.

Keywords: Book-Tax Differences, Permanent Book-Tax Differences, Temporary Book-Tax Differences, Divergence of Opinion, Difference of Opinion

JEL Classification: D83, G14, H25, M41

Suggested Citation

Comprix, Joseph and Graham, Roger C. and Moore, Jared A., Empirical Evidence on the Impact of Book-Tax Differences on Divergence of Opinion Among Investors (August 17, 2010). Journal of the American Taxation Association, Vol. 33, No. 1, 2011, Available at SSRN: https://ssrn.com/abstract=1668725

Joseph Comprix

Syracuse University ( email )

Whitman School of Management
721 University Avenue
Syracuse, NY 13244-2450
United States
315-443-3674 (Phone)
315-442-1461 (Fax)

Roger C. Graham

Oregon State University ( email )

424 Austen Hall
Corvallis, OR 97331
United States
541-737-4028 (Phone)
541-737-4890 (Fax)

Jared A. Moore (Contact Author)

Western Washington University ( email )

Bellingham, WA 98225-9071
United States
360-650-6252 (Phone)

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