Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5086889 | Journal of Accounting and Economics | 2010 | 15 Pages |
Abstract
Calls for eliminating differences between accounting earnings and taxable income in the US have been debated extensively. Proponents of increased book-tax conformity argue that tax compliance will increase and earnings quality will improve. Opponents argue that earnings quality will decline. We examine whether the level of required book-tax conformity affects earnings persistence and the association between earnings and future cash flows. We develop a comprehensive book-tax conformity measure and find that earnings have lower persistence and a lower association with future cash flows when conformity is higher. Our evidence suggests that increased book-tax conformity may reduce earnings quality.
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Authors
T.J. Atwood, Michael S. Drake, Linda A. Myers,