Hanlon 2005 book tax differences examples

One example is hanlon 2005 which presents results consistent with firms having large booktax differences in a crosssection of firms having lower earnings. The persistence of booktax differences sciencedirect. The persistence and pricing of earnings, accruals, and cash flows when firms have large book tax differences. Pdf booktax differences as an indicator of financial distress. Booktax conformity and reporting behavior econstor. The relation between booktax differences btd and accounting information quality is not. The degree to which the resulting levels of income correspond depends on the extent of conformity between the two measures hanlon, 2005. Book tax income differences frequently serve as a key proxy in studies investigating earnings management and tax sheltering activities.

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. There is, for example, no unanimity as to whether booktax conformity leads to more or to. Can book tax differences capture earnings management and tax management. We test the model with a sample of 21 listed tunisian. Tax avoidance, large positive temporary booktax differences. Because tax law is generally different from book reporting requirements, book income can differ from taxable income. Mills and plesko 1 582003 bridging the reporting gap. Maria theresia evers, ina meier, katharina nicolay november 2016. Hanlon 2005 suggest that the tax figures contained accounting reports provide. Over the last decade, a large body of tax accounting literature on the association between. Any difference between the two levels is commonly referred to as the book tax difference btd. For example, impairment losses and fair value measurements should result in. Booktax differences and the persistence of earnings and accruals. Michelle hanlon 2005 the persistence and pricing of earnings, accruals, and cash flows when firms have large book.

Mcclelland and mills 2007 of increased booktax conformity, however, emphasize the divergent. Hanlon 2005 examines the implications of large booktax. Introduction a large body of literature from the u. Booktax income differences frequently serve as a key proxy in studies investigating. Hanlon 2005 demonstrates that pretax earnings of firms with large positive or. Booktax differences as an indicator of financial distress. Despite both book and taxable income being prepared on an accrual basis, differences between book and taxable incomes can be large. Booktax conformity and the information content of earnings. Book tax conformity for corporate income 105 and to reward particular constituencies scholes, wolfson, erickson, maydew, and shevlin, 2002. Booktax income differences and major determining factors. This is reasonable because managers can manage either book. The sample corresponds to all industrial and commercial firms listed on the. Booktax differences, a proxy for earnings management and. Hanlon 2005 examines the implications of large booktax differences for.

Thus, one may be tempted to conclude that eliminating book tax differences by requiring conformity would improve earnings quality. Booktax differences as an indicator of financial distress 473. Examples of normal temporary differences are depreciation and allowance. The persistence and pricing of earnings, accruals, and cash.

Pdf tax avoidance, large positive booktax differences and. The extant literature suggests that as the difference between book and taxable income widens, there is an increased risk of deteriorating earnings quality. Book tax differences as an indicator of financial distress. 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. For example, permanent book tax differences, such as municipal bond interest, are differences between pre tax book and taxable income that never reverse.