American Taxation Association

JATA abstracts - Spring 2009

JATA - Spring 2009

Volume 30, No. 1

Dividend Tax Clienteles: Evidence from Tax Law Changes
William Moser and Andy Puckett

Inferring U.S. Tax Liability from Financial Statement Information
Petro Lisowsky

The Influence of Differences in Taxable Income and Book Income on the Bond Credit Market
Aaron Crabtree and John J. Maher


Dividend Tax Clienteles: Evidence from Tax Law Changes

William Moser and Andy Puckett

Abstract

We investigate institutional investorsí preference for dividend-paying stocks following changes in the dividend tax penalty during the sample period from 1987 until 2004. Following prior literature we separate institutions into tax-advantaged and taxable cohorts and find that when the dividend tax penalty is positive, high-dividend firms constitute a significantly larger (smaller) percentage of tax-advantaged (taxable) institutionsí portfolios. Multivariate regressions involving institutional ownership levels and changes confirm our initial findings. We estimate (for the median dividend-paying firm) when the dividend tax penalty decreases by 23.3%, we expect tax-advantaged (taxable) institutional ownership will decrease by 0.36% (increase by 0.25%) of a firmís shares outstanding. We find our results are robust for a subsample of firms that do not change their dividend policy. Overall, our paper provides strong support for the existence of institutional dividend tax clienteles. ©2009 American Accounting Association   Top


Inferring U.S. Tax Liability from Financial Statement Information

Petro Lisowsky

Abstract

Using a multi-year matched tax return-financial statement dataset, this study builds empirical models that infer U.S. tax liability on the corporate tax return from publicly available financial statement disclosures, including those of Statement on Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS No. 109). Results show that current U.S. tax expense, the tax benefit from stock options, current-year tax cushion accrual, consolidation book-tax differences, and R&D are informative in inferring actual tax, while intraperiod tax allocation is not. Additionally, the sign of pretax book income and the existence of net operating loss carryforwards are useful partitioning variables in estimating actual tax. In general, for every dollar of current U.S. tax expense reported on the financial statements, approximately $0.70 is reported in U.S. tax liability on the tax return. The models are validated using a holdout sample, providing support for the notion that public parties can reliably use these results to estimate a firmís tax position. Additional tests reveal a hierarchy of sub-samples that researchers may employ when maximizing the usefulness of tax-related disclosures in inferring U.S. tax liability. ©2009 American Accounting Association    Top


The Influence of Differences in Taxable Income and Book Income on the Bond Credit Market

Aaron Crabtree and John J. Maher

Abstract

We examine the importance of information pertaining to the relationship between taxable income and reported book income to bond rating analysts. Specifically, using a relatively large sample of new bond issues over an extended period of time, we examine information related to deferred taxes as well as the overall tax-to-book position in the assessment of a firmís default risk. Our results are consistent with the existence of a U-shaped relationship, with firms falling in the extreme upper or lower quintiles of their industry-year group receiving lower bond ratings than firms that are nearer to their industry average. Additional analyses suggest this effect is partially diminished for firms identified as highly effective tax planners. Finally, examination of investorsí bond yields provides further corroborating evidence with respect to the importance and treatment of the information provided by the firmís overall tax-to-book position. ©2009 American Accounting Association   Top

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