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Economic consequences of increasing the conformity in accounting for uncertain tax benefits

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  • Frischmann, Peter J.
  • Shevlin, Terry
  • Wilson, Ryan
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    Abstract

    Commentary during the development of FASB Interpretation no. 48 suggests the interpretation could be costly for firms because new disclosure requirements could be used by the IRS to more effectively challenge uncertain tax positions. Stock returns around FIN 48 pronouncements suggest investors were not concerned about an increase in tax costs, and investors responded favorably to initial disclosures required under FIN 48. However, we document a significant negative market reaction to subsequent news of a Senate inquiry into these disclosures consistent with investors revising their beliefs over the potential for additional tax costs.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Accounting and Economics.

    Volume (Year): 46 (2008)
    Issue (Month): 2-3 (December)
    Pages: 261-278

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    Handle: RePEc:eee:jaecon:v:46:y:2008:i:2-3:p:261-278

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    Web page: http://www.elsevier.com/locate/jae

    Related research

    Keywords: Event study Disclosures Taxes Tax contingency Uncertain tax benefits;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Hanlon, Michelle, 2003. "What Can We Infer about a Firm’s Taxable Income from Its Financial Statements?," National Tax Journal, National Tax Association, vol. 56(4), pages 831-63, December.
    2. Mihir Desai & Dhammika Dharmapala, . "Corporate Tax Avoidance and High Powered Incentives," American Law & Economics Association Annual Meetings, American Law & Economics Association 1006, American Law & Economics Association.
    3. Verrecchia, Robert E., 2001. "Essays on disclosure," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 32(1-3), pages 97-180, December.
    4. Espahbodi, Hassan & Espahbodi, Pouran & Rezaee, Zabihollah & Tehranian, Hassan, 2002. "Stock price reaction and value relevance of recognition versus disclosure: the case of stock-based compensation," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 33(3), pages 343-373, August.
    5. Mihir A. Desai, 2003. "The Divergence between Book Income and Tax Income," NBER Chapters, in: Tax Policy and the Economy, Volume 17, pages 169-208 National Bureau of Economic Research, Inc.
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    Cited by:
    1. Lin, Shannon & Tong, Naqiong & Tucker, Alan L., 2014. "Corporate tax aggression and debt," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 227-241.
    2. Graham, John R. & Raedy, Jana S. & Shackelford, Douglas A., 2012. "Research in accounting for income taxes," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 53(1), pages 412-434.
    3. Hanlon, Michelle & Heitzman, Shane, 2010. "A review of tax research," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 50(2-3), pages 127-178, December.
    4. Douglas Shackelford & Joel Slemrod & James Sallee, 2011. "Financial reporting, tax, and real decisions: toward a unifying framework," International Tax and Public Finance, Springer, vol. 18(4), pages 461-494, August.

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