EVIDENCE ON THE VALUE-RELEVANCE OF DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIES (DEFERRED TAXES, SFAS 109).

摘要

This paper assesses the value-relevance of the balance sheet classification of current and noncurrent deferred taxes and the disclosure requirements of deferred taxes in the footnote as required under SFAS 109. Reported amounts of deferred tax assets (liabilities) can affect financial statement interpretation and analysis. Investors and creditors can ignore deferred taxes, include them in equity, or consider them as real assets or liabilities. Ratios such as debt to equity, return on assets, and current ratio can be greatly affected.; In this study, I analyze the economic event underlying deferred tax assets (liabilities) in order to obtain information about their realization. I also examine the value-relevance of the income tax disclosure for three major industries: drug, automotive, and computer. Finally, I attempt to isolate the effect of growth on deferred taxes.; I use a model that relates price-to-book ratio to earnings and deferred taxes to perform tests on a sample of companies listed on NYSE and AMEX for the years 1992 to 1996. Because the sample is panel data, the model is better estimated by the two-way fixed-effects approach. The findings suggest that, depending on the industry, deferred tax disclosures under SFAS 109 are value-relevant to the market.; The current and noncurrent classification of deferred taxes generally provides valuable information. Also the disaggregation of deferred taxes related to provisions and contra assets into three levels of realization—short-term, mid-term, and long-term—appears to be appropriate because it better isolates which components of deferred taxes are considered by the market to be realizable.; Contrary to expectations, controlling for growth generally does not alter the findings. Three explanations exist for these results. First, the proxies for growth used may not be appropriate for the firms in my sample. Second, the market may simply not assess the value-relevance of deferred taxes in light of growth. Finally, the partitioning into high, medium and low growth might not be fine enough to find clear evidence of the effect of growth on the realization of deferred taxes. The study's results are robust since the findings are confirmed by different regression approaches.