Is There Information Content in the Tax Footnote?
51 Pages Posted: 11 Feb 2011 Last revised: 20 Sep 2012
Date Written: February 10, 2011
Prior studies show that aggregated book-tax differences have information content that is incremental to pre-tax book income. We test whether the detailed book-tax difference disclosures from statements of deferred tax position and rate reconciliations have information content that is incremental to the aggregate book-tax difference. Using hand-collected data from the Fortune 250 from 1993 to 2007, we find little evidence that the equity markets price different book-tax differences differently, consistent with no incremental information content. Further work is needed to explain why the sum of the book-tax differences matter to investors, but the parts do not.
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