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
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: Suggested Citation