Reducing Errors in Measures of Corporate Tax Incentives

26 Pages Posted: 30 Sep 2002

See all articles by Lillian F. Mills

Lillian F. Mills

University of Texas at Austin - McCombs School of Business

Kaye J. Newberry

University of Arizona - Department of Accounting

Garth Novack

affiliation not provided to SSRN

Date Written: June 27, 2002

Abstract

Using a matched sample of firms' tax-loss carryovers computed from their U.S. tax returns and Compustat data over 1981-1995, we evaluate how well Compustat data (item #52) classifies firms as having U.S. tax-loss carryovers, identify sources of misclassification error, and investigate the effectiveness of data screens to reduce error rates. We find that using additional Compustat data for U.S. current income tax or total pretax income works well in reducing certain types of misclassification errors. We conclude that researchers should be particularly careful in constructing tax proxies when their research setting involves firms with foreign operations or corporate acquisitions activity.

Keywords: marginal tax rate, taxes, net operating losses, multinationals, corporate acquisitions

JEL Classification: H25, M41, G34

Suggested Citation

Mills, Lillian F. and Newberry, Kaye J. and Novack, Garth, Reducing Errors in Measures of Corporate Tax Incentives (June 27, 2002). Available at SSRN: https://ssrn.com/abstract=317609 or http://dx.doi.org/10.2139/ssrn.317609

Lillian F. Mills (Contact Author)

University of Texas at Austin - McCombs School of Business ( email )

Austin, TX 78712
United States

Kaye J. Newberry

University of Arizona - Department of Accounting ( email )

Tucson, AZ 85721
United States
520-621-1252 (Phone)
520-621-3742 (Fax)

Garth Novack

affiliation not provided to SSRN

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