Value Relevance of Book and Tax Income: A Macroeconomic Conditions Perspective

Accounting & Taxation, v. 4 (2) p. 1-12, 2012

12 Pages Posted: 29 Jan 2013

Date Written: 2012

Abstract

This paper tests how macroeconomic conditions affect the value relevance of book and tax income. Based on regression coefficient estimates, more than 8% in the value relevance of book income is dependent on the interaction with a proxy for the macroeconomy. For a possible policy change where tax rules have a greater influence on financial accounting, the erosion of earnings quality will be more pronounced during economic expansion than contraction. Under such policy change, investors may lose additional information for them to price earnings based on stages of the economy.

Keywords: book income, tax income, book-tax conformity, earnings quality, macroeconomic

JEL Classification: E30, H25, M41

Suggested Citation

Zhou, Mingjun, Value Relevance of Book and Tax Income: A Macroeconomic Conditions Perspective (2012). Accounting & Taxation, v. 4 (2) p. 1-12, 2012, Available at SSRN: https://ssrn.com/abstract=2144863

Mingjun Zhou (Contact Author)

DePaul University ( email )

1 East Jackson Blvd.
Chicago, IL 60604
United States

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