Hanlon 2005 book tax differences examples

Booktax differences as an indicator of financial distress 473. Maria theresia evers, ina meier, katharina nicolay november 2016. For example, impairment losses and fair value measurements should result in. Section iv presents the earnings persistence test results. The persistence and pricing of earnings, accruals, and. Can book tax differences capture earnings management and tax management. For example, permanent book tax differences, such as municipal bond interest, are differences between pre tax book and taxable income that never reverse.

The extant literature suggests that as the difference between book and taxable income widens, there is an increased risk of deteriorating earnings quality. Examples of normal temporary differences are depreciation and allowance. The persistence and pricing of earnings, accruals, and cash flows when firms have large book tax differences. Book tax differences as an indicator of financial distress 483. One example is hanlon 2005, which presents results consistent with firms having relatively large book tax differences in a crosssection of firms also having lower earnings persistence. Booktax conformity and the information content of earnings.

Hanlon 2005 examines the implications of large booktax differences for. The degree to which the resulting levels of income correspond depends on the extent of conformity between the two measures hanlon, 2005. Booktax differences and the persistence of earnings and accruals. Pdf tax avoidance, large positive booktax differences and. Academic researchers and policy activists have used the difference between accounting income and estimated taxable income, commonly referred to as the book tax difference btd as a proxy of the unobservable level of corporate income tax planning. Book tax income differences frequently serve as a key proxy in studies investigating earnings management and tax sheltering activities. Booktax differences as an indicator of financial distress. Book tax conformity for corporate income 105 and to reward particular constituencies scholes, wolfson, erickson, maydew, and shevlin, 2002.

Over the last decade, a large body of tax accounting literature on the association between. Mills and plesko 1 582003 bridging the reporting gap. Introduction a large body of literature from the u. Common booktax differences on schedule m1 for 1120 the purpose of the schedule m1 is to reconcile the entitys accounting income book income with its taxable income. Hanlon 2005 found that investors use btd as a means of earnings quality.

A proposal for more informative reconciling of book and tax income introduction a spate of highprofile cases involving profitable. Book tax differences as an indicator of financial distress. The sample corresponds to all industrial and commercial firms listed on the. Mcclelland and mills 2007 of increased booktax conformity, however, emphasize the divergent. Hanlon 2005 demonstrates that pretax earnings of firms with large positive or. Despite both book and taxable income being prepared on an accrual basis, differences between book and taxable incomes can be large. The relation between booktax differences btd and accounting information quality is not. Any difference between the two levels is commonly referred to as the book tax difference btd. Michelle hanlon 2005 the persistence and pricing of earnings, accruals, and cash flows when firms have large book. Hanlon 2005 examines the implications of large booktax. For example, manzon and plesko 2002 discuss differences in accounting. This is reasonable because managers can manage either book. Pdf booktax differences as an indicator of financial distress.

There is, for example, no unanimity as to whether booktax conformity leads to more or to. Booktax income differences frequently serve as a key proxy in studies investigating. Booktax differences, a proxy for earnings management and. One example is hanlon 2005 which presents results consistent with firms having large booktax differences in a crosssection of firms having lower earnings. Tax avoidance, large positive temporary booktax differences. We test the model with a sample of 21 listed tunisian. Because tax law is generally different from book reporting requirements, book income can differ from taxable income. Hanlon 2005 suggest that the tax figures contained accounting reports provide. Permanent book tax differences are not often suspected to be indicators of. Booktax income differences and major determining factors. The persistence of booktax differences sciencedirect. The persistence and pricing of earnings, accruals, and cash. For example, permanent booktax differences, such as.