The Valuation Relevance of Reversing Deferred Tax Liabilities

David A. Guenther
University of Colorado at Boulder

Richard C. Sansing
Dartmouth College

Abstract: This paper examines a dispute in the literature regarding the effect of deferred tax reversals on firm value. Guenther and Sansing (2000) show that the valuation factor associated with the deferred tax liability (DTL) does not depend on when or whether the liability reverses. Amir, Kirschenheiter, and Willard (2001) argue that the rate of reversal of the DTL at the asset level does affect the valuation factor. This paper demonstrates that an increase in the rate at which the DTL reverses at the asset level is neither necessary nor sufficient for either the valuation factor or the value of the DTL to increase.

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