Persistent Link:
http://hdl.handle.net/10150/195331
Title:
The Persistence and Value Relevance of Earnings From Tax Savings
Author:
Brown, Darryl Lee
Issue Date:
2006
Publisher:
The University of Arizona.
Rights:
Copyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.
Abstract:
This dissertation examines the persistence and value relevance of earnings attributable to tax savings and the extent to which this persistence and value relevance differs from those of nontax earnings. After controlling for factors previously shown to be systematically associated with the tax component of earnings, results show that tax savings are significant and statistically persistent but statistically less persistent than earnings from nontax sources. Results also reveal that the persistence of tax savings changes across tax regimes whereas earnings from nontax sources remain relatively unchanged. Contextual analysis shows that (1) the persistence of tax savings is largely driven by firms in the pharmaceutical, oil and gas, financial services, insurance and real estate industries, (2) the persistence of tax savings is increasing in the R&D tax credit and (3) this persistence is increasing in settings where the ratio of foreign over domestic earnings is increasing. Additionally, the persistence and value relevance of tax savings is increasing for positive tax savings, implying a market reward (penalty) for lower (higher) tax savings (reported effective tax rates). When I compare the results from my valuation tests with those from my persistence tests, I find that tax savings are sometimes not persistent but value relevant and sometimes persistent but not value relevant whereas the persistence and value relevance of nontax earnings are always consistent. These findings are consistent with managerial opportunistic behavior, a market that suspects managerial opportunistic behavior or a stock market that does not understand fully the persistence of tax savings relative to nontax savings. Results from the Mishkin (1983) test show that the market appears to significantly overestimate both the persistence of tax savings and nontax earnings, implying that securities are mispriced. This potential mispricing appears to be more severe for tax savings, implying that, on average, the market does not appear to understand fully the persistence and value relevance of the tax component of earnings. Finally, this study reconciles some of the mixed results of prior research and carries significant implications for policy makers, firm management, market participants and accounting researchers.
Type:
text; Electronic Dissertation
Keywords:
Accounting
Degree Name:
PhD
Degree Level:
doctoral
Degree Program:
Accounting; Graduate College
Degree Grantor:
University of Arizona
Committee Chair:
Dhaliwal, Dan S.

Full metadata record

DC FieldValue Language
dc.language.isoENen_US
dc.titleThe Persistence and Value Relevance of Earnings From Tax Savingsen_US
dc.creatorBrown, Darryl Leeen_US
dc.contributor.authorBrown, Darryl Leeen_US
dc.date.issued2006en_US
dc.publisherThe University of Arizona.en_US
dc.rightsCopyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.en_US
dc.description.abstractThis dissertation examines the persistence and value relevance of earnings attributable to tax savings and the extent to which this persistence and value relevance differs from those of nontax earnings. After controlling for factors previously shown to be systematically associated with the tax component of earnings, results show that tax savings are significant and statistically persistent but statistically less persistent than earnings from nontax sources. Results also reveal that the persistence of tax savings changes across tax regimes whereas earnings from nontax sources remain relatively unchanged. Contextual analysis shows that (1) the persistence of tax savings is largely driven by firms in the pharmaceutical, oil and gas, financial services, insurance and real estate industries, (2) the persistence of tax savings is increasing in the R&D tax credit and (3) this persistence is increasing in settings where the ratio of foreign over domestic earnings is increasing. Additionally, the persistence and value relevance of tax savings is increasing for positive tax savings, implying a market reward (penalty) for lower (higher) tax savings (reported effective tax rates). When I compare the results from my valuation tests with those from my persistence tests, I find that tax savings are sometimes not persistent but value relevant and sometimes persistent but not value relevant whereas the persistence and value relevance of nontax earnings are always consistent. These findings are consistent with managerial opportunistic behavior, a market that suspects managerial opportunistic behavior or a stock market that does not understand fully the persistence of tax savings relative to nontax savings. Results from the Mishkin (1983) test show that the market appears to significantly overestimate both the persistence of tax savings and nontax earnings, implying that securities are mispriced. This potential mispricing appears to be more severe for tax savings, implying that, on average, the market does not appear to understand fully the persistence and value relevance of the tax component of earnings. Finally, this study reconciles some of the mixed results of prior research and carries significant implications for policy makers, firm management, market participants and accounting researchers.en_US
dc.typetexten_US
dc.typeElectronic Dissertationen_US
dc.subjectAccountingen_US
thesis.degree.namePhDen_US
thesis.degree.leveldoctoralen_US
thesis.degree.disciplineAccountingen_US
thesis.degree.disciplineGraduate Collegeen_US
thesis.degree.grantorUniversity of Arizonaen_US
dc.contributor.chairDhaliwal, Dan S.en_US
dc.contributor.committeememberMills, Lilen_US
dc.contributor.committeememberTrombley, Marken_US
dc.identifier.proquest1518en_US
dc.identifier.oclc137355842en_US
All Items in UA Campus Repository are protected by copyright, with all rights reserved, unless otherwise indicated.