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. / text
| Identifer | oai:union.ndltd.org:UTEXAS/oai:repositories.lib.utexas.edu:2152/6603 |
| Date | 22 October 2009 |
| Creators | Schwab, Casey Martin |
| Source Sets | University of Texas |
| Language | English |
| Detected Language | English |
| Format | electronic |
| Rights | Copyright is held by the author. Presentation of this material on the Libraries' web site by University Libraries, The University of Texas at Austin was made possible under a limited license grant from the author who has retained all copyrights in the works. |
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