Tax Loss Carryforward Disclosure and Uncertainty

arqus Discussion Paper No. 208

56 Pages Posted: 8 Jun 2017

Date Written: 2017


We examine whether companies voluntarily disclose additional information about tax loss carryforwards when the recoverability is more uncertain. With this study, we aim to explain part of the huge cross-sectional variation in the tax footnote. To assess disclosure behavior, we hand-collect data from notes of large German firms’ IFRS financial statements and identify voluntarily disclosed information. First, our results support prior literature’s evidence of a considerable cross-sectional variation of disclosure in the tax footnote. Second, we find that uncertainty about the usability of tax losses has a significantly positive relation to the amount and quality of disclosure, controlling for other disclosure determinants derived from prior literature and for sample selection. Third, our results indicate that the observed disclosure behavior is not simply a reflection of the firm’s general disclosure behavior but specific to the tax footnote. These findings are robust to several historic and forward-looking indicators representing uncertainty. Our findings suggest that managers anticipate the investors’ need for more private information and disclose them voluntarily to reduce information asymmetries. This result indicates that part of the cross-sectional variation in the tax footnote can be explained by firms anticipating investors’ demand for additional information.

Keywords: tax loss carryforwards, disclosure, uncertainty, tax footnote, deferred taxes

JEL Classification: M40, M41, M49

Suggested Citation

Flagmeier, Vanessa and Mueller, Jens, Tax Loss Carryforward Disclosure and Uncertainty (2017). arqus Discussion Paper No. 208 , Available at SSRN: or

Vanessa Flagmeier (Contact Author)

University of Passau ( email )

Innstrasse 27
Passau, 94032

Jens Mueller

Paderborn University ( email )

Warburger Str. 100
Paderborn, 33098

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