The determinants and effects of voluntary book-tax difference disclosures : evidence from earnings press releases

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Title: The determinants and effects of voluntary book-tax difference disclosures : evidence from earnings press releases
Author: Schwab, Casey Martin
Abstract: This study investigates the determinants and effects of voluntary book -tax difference (BTD ) disclosures in earnings releases . Unlike prior studies , I find no evidence that managers are more likely to voluntarily disclose BTD information when firms have low earnings quality . I also find that managers are more likely to disclose BTD information when firms have large negative but not large positive BTDs . Because BTDs are particularly informative when earnings quality is low and when book income significantly exceeds taxable income (i .e . , large positive BTDs ) , these results suggest that managers selectively disclose BTD information in earnings releases . Interestingly , I also find that managers are more willing to disclose BTD information when tax avoidance activities are high . This result suggests that managers are willing to bear some taxrelated disclosure costs to reassure investors that BTDs are not due to aggressive financial reporting . Prior research provides evidence of a systematic association between BTDs computed using required 10 -K tax disclosures and future forecast errors and stock returns . I provide evidence that voluntary BTD disclosures attenuate the association between BTDs and future forecast errors . I also provide limited evidence that voluntary BTD disclosures attenuate the association between BTDs and future stock returns . These results suggest that voluntary BTD disclosures help analysts and investors impound BTD information into earnings forecasts and stock prices .
URI: http : / /hdl .handle .net /2152 /6603
Date: 2009-10-22

Citation

The determinants and effects of voluntary book-tax difference disclosures : evidence from earnings press releases. Doctoral dissertation, The University of Texas at Austin. Available electronically from http : / /hdl .handle .net /2152 /6603 .

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