The Financial Crisis and the Value-relevance of Recognised Deferred Tax Assets

2016 ◽  
Vol 26 (3) ◽  
pp. 291-300 ◽  
Author(s):  
Wessel M. Badenhorst ◽  
Petri H. Ferreira
Keyword(s):  
Financial Crisis ◽  
Value Relevance ◽  
Deferred Tax Assets ◽  
Deferred Tax

scholarly journals Earnings Management Through Deferred Taxes Recognized Under IAS 12: Evidence From Pakistan

2014 ◽  
Vol 3 (1) ◽  
pp. 1-19
Author(s):  
Abdul Rafay Abdul Rafay ◽  
Mobeen Ajmal
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Value Relevance ◽  
Relevant Information ◽  
Cash Flows ◽  
Deferred Taxes ◽  
Deferred Tax Assets ◽  
Operational Activities ◽  
Deferred Tax ◽  
Relevant Component

This study examines earnings management through deferred taxes calculated under the IAS 12 and its impact on firm valuation. The literature finds that book–tax nonconformity leads to better earning quality and a greater association between earnings and future expected cash flows. Given that Pakistan is a pioneering implementer of the International Financial Reporting Standards, our hypothesis is that the components of deferred tax disclosed under the IAS 12 provide value-relevant information to equity investors. We divide deferred tax components into three categories: those arising from (i) operational activities, (ii) investing activities, and (iii) financing activities. These are subdivided to ensure that no value-relevant component is aggregated with a nonvalue-relevant component, which might otherwise lead to an information slack. Our sample includes data on shariah-compliant companies listed on the Karachi Meezan Index (KMI-30). We find that deferred tax line items in firms’ balance sheets are reflected in market prices. Investors also tend to treat deferred tax line items (arising from operating, financing, and investing activities) differently. Furthermore, the value relevance is dissimilar for different components of deferred tax. Investors are wary of deferred tax assets and liabilities when pricing and are likely to penalize firms with a higher deferred tax position.

Incremental Value Relevance of Unrecognized Deferred Taxes: Evidence from the United Kingdom

2008 ◽  
Vol 30 (2) ◽  
pp. 107-130 ◽  
Author(s):  
Stephen Gregory Lynn ◽  
Chandra Seethamraju ◽  
Ananth Seetharaman
Keyword(s):  
Value Relevance ◽  
Weighted Least Squares ◽  
Annual Reports ◽  
Deferred Taxes ◽  
Deferred Tax Assets ◽  
Share Prices ◽  
The United Kingdom ◽  
Incremental Value ◽  
Theoretical Predictions ◽  
Deferred Tax

ABSTRACT: We examine empirically whether the use of the partial method for deferred taxes provides incremental information of use to investors. Specifically, we test whether U.K. capital markets valued unrecognized deferred tax amounts reported in the footnotes to U.K. annual reports, pursuant to U.K. Statement of Standard Accounting Practice (SSAP) No. 15 (ASB 1985). Our empirical model is based on Feltham and Ohlson (1995). We run iterative weighted least-squares (IWLS) regression of year-end share prices on a decomposition of book value per share for a pooled sample of U.K. firm-years drawn from the years 1993 through 1998, and find positive associations with price for net deferred tax assets—both recognized and unrecognized. Moreover, we are unable to reject the null hypothesis that both parts of deferred taxes have similar multiples in our price regressions. These findings support some theoretical predictions in Sansing (1998), Guenther and Sansing (2000, 2004), and Amir et al. (2001).

scholarly journals Value relevance of deferred tax assets in the Brazilian banking industry

2020 ◽  
Vol 31 (82) ◽  
pp. 33-49
Author(s):  
Leandro Dias Guia ◽  
José Alves Dantas
Keyword(s):  
Capital Market ◽  
Banking Industry ◽  
Value Relevance ◽  
Negative Relationship ◽  
Market Value ◽  
Economic Benefits ◽  
Equity Structure ◽  
Deferred Tax Assets ◽  
Deferred Tax

ABSTRACT This study aimed to investigate the informational relevance to the capital market of the significant level of deferred tax assets (DTAs) in the Brazilian banking industry, identifying whether such assets influence the market value of publicly-held banks. The value relevance of DTAs in the banking industry is an incipient topic in the national literature, with conflicting results in the international research. Brazil presents characteristics, most notably regarding the dimension of the asymmetries between accounting and taxable profit, which justify concern about the effects of DTAs on the market value of banks. The literature highlights issues involving DTAs related to their ability to generate economic benefits and control of the entity, especially in the banking industry, due to not fulfilling the role of financial intermediation, which would make them devoid of economic substance. This would signal potential bank risks and weaknesses, such as a reduction in the quality of equity and profits, in addition to distortions in the economic-financial indicators, which would justify a negative perception on the part of investors. As the study’s main contribution to the literature, we can highlight the identification that in the Brazilian market, the asymmetries between banks’ taxable and corporate earnings, the origin of deferred tax assets, weigh negatively on the market value of these institutions. We empirically tested the hypothesis in the Brazilian capital market, using data from 2000 to 2017 on publicly-held banks, by estimating two models - Market-to-Book and Ohlson (1995). The results of this study show that in the Brazilian capital market there is a negative relationship between the volume of the banks’ DTAs and the market value of these entities, corroborating the hypothesis that investors identify the relevance of these assets in the equity structure as a sign of the quality of the equity and the profit of these entities being undermined.

scholarly journals Deferred Tax Positions under the Prism of Financial Crisis and the Effects of a Corporate Tax Reform

2015 ◽  
Vol 2 (2) ◽  
pp. 21-58 ◽  
Author(s):  
Evangelos Chytis ◽  
Evangelos Koumanakos ◽  
Spiridon Goumas
Keyword(s):  
Financial Crisis ◽  
Policy Design ◽  
Economic Recession ◽  
Corporate Tax ◽  
Tax Reforms ◽  
Tax Rate ◽  
Deferred Tax Assets ◽  
Corporate Behavior ◽  
Short Run ◽  
Deferred Tax

The effects of corporate tax reforms in reported profits and firms' financial position have been extensively studied in the literature. However, only few studies disaggregate deferred tax items to jointly explore political implications and aspects of corporate behavior around such reforms. Greece's recent financial crisis and economic recession provides an intriguing setting for examining possible incentives and consequences of substantial tax rate changes, such as the 6% increase imposed by the Greek Government in year 2013. Results reveal a totally different picture between financial and non-financial firms, with the former being clearly favored, at least from this short-run effect. These findings seem to coincide with the view that tax policy design is usually shaped by taking into consideration powerful groups' interests. Regarding probable Determinants of Deferred Tax Assets for Tax Loss Carry forwards, the authors find that firms the audit firm may significantly affect recognized amounts due to firm specific internal guidelines and due to the overall quality of the audit.

The Information Content of Tax Loss Carryforwards Before and During the Global Financial Crisis

2018 ◽  
pp. 91-107
Author(s):  
Chytis Evangelos ◽  
Filos Ioannis ◽  
Gkouma Olympia
Keyword(s):  
Financial Crisis ◽  
Banking Sector ◽  
Global Financial Crisis ◽  
Telecommunications Industry ◽  
Deferred Tax Assets ◽  
Before And After ◽  
Tax Payments ◽  
Deferred Tax ◽  
The Global Financial Crisis ◽  
Tax Loss

Tax loss carryforwards are a valuable asset because they usually reduce a company's future tax payments. This chapter investigates the importance of deferred tax assets from tax loss carryforwards (DTA_TLC) by sector and index (FTSE/ASE) for the period before and after the outbreak of the financial crisis (2005-2012). In the non-banking industry, the DTA_TLC cover on average half (1/2) of the total deferred tax assets (DTAs) and one-fifth (1/5) of income before taxes (IBT). The telecommunications industry accounts for the largest DTA_TLC components, while the chemicals sector for the smallest. On average, the companies listed in the FTSE/ASE 20 report DTA_TLC five times larger than those of the FTSE/ASE 40. In the banking sector, until 2009 DTA_TLC constituted a small part of total assets and IBT. In contrast, after 2010, DTAs include significant components of DTA_TLC, as a consequence of the private sector involvement (PSI) and the financial crisis.

Banks’ deferred tax assets during the financial crisis

2018 ◽  
Vol 53 (2) ◽  
pp. 527-550 ◽  
Author(s):  
J. Douglas Hanna ◽  
Zining Li ◽  
Wayne Shaw
Keyword(s):  
Financial Crisis ◽  
Deferred Tax Assets ◽  
Deferred Tax

scholarly journals Value Relevance of Deferred Tax Assets Since The Adoption of K－IFRS

2018 ◽  
Vol null (58) ◽  
pp. 125-144
Author(s):  
KIM, SEONGHYEON ◽  
JOINSEON ◽  
김문태
Keyword(s):  
Value Relevance ◽  
Deferred Tax Assets ◽  
Deferred Tax
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