Dissertation/Thesis Abstract

New Evidence on Investors' Valuation of Deferred Tax Liabilities
by Hamilton, John Russell, Ph.D., The University of Arizona, 2018, 61; 10748935
Abstract (Summary)

Although deferred tax liabilities represent a significant liability for most firms, prior research provides mixed evidence concerning investors' valuation of these items. Using an expanded data set of hand-collected tax footnotes, I examine (1) whether investors recognize depreciation-related deferred tax liabilities as economic burdens, and if so, (2) how investors measure the effect of these liabilities. I find evidence suggesting that investors price depreciation-related deferred tax liabilities as economic burdens and show that my primary findings are robust to the use of a changes-based methodology. I also examine various factors that could affect investors' measurement of these liabilities. In doing so, I develop a new method to identify tax-sensitive firms to implement my tests. This method incorporates forward-looking profit expectations without a look-ahead bias. Finally, I provide evidence of circumstances where investors discount deferred tax liabilities despite current accounting standards prohibiting managers from discounting these deferred tax liabilities in the reported financial statements. As depreciation-related deferred tax liabilities are among the largest and most common deferred tax liabilities, my study provides important insights into investors' valuation of firms' tax planning.

Indexing (document details)
Advisor: Drake, Katharine
Commitee: Hewitt, Max, Yu, Jiewei (Jeff)
School: The University of Arizona
Department: Management
School Location: United States -- Arizona
Source: DAI-A 79/10(E), Dissertation Abstracts International
Subjects: Accounting
Keywords: Deferred tax liabilities, Depreciation, Discounting, Firm value
Publication Number: 10748935
ISBN: 978-0-355-94223-1
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