|
Taxable Income as a Performance Measure: The Effects of Tax Planning and Earnings Quality
Benjamin C. Ayers, University of Georgia
John (Xuefeng) Jiang, Michigan State University
Stacie K. Laplante, University of Georgia
ABSTRACT. Extant research suggests that book-tax differences are useful measures in evaluating firm performance. There is little evidence, however, regarding taxable income as an alternative performance measure to book income. We examine firm characteristics that mitigate or enhance the ability of taxable income to inform investors regarding firm performance and document that the relative information content of taxable income to book income is significantly lower for high tax planning firms and significantly higher for low earnings quality firms relative to all other firms. Our results suggest that tax planning and low earnings quality have contrasting effects on the information content of taxable income. These findings are pertinent to recent research examining book-tax differences as a measure of discretion or earnings quality and taxable income as an alternative performance measure, as well as the recent debate on book-tax conformity.
Full-Text is no longer available online. Please contact the author(s) for more information about this manuscript.
Back to Session Listing
|