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Applications of Book-Tax Difference in Accounting and Finance Research

In: Encyclopedia of Finance

Author

Listed:
  • Nan-Ting Kuo

    (Shandong University of Technology, Business School)

  • Shang-En Yu

    (Jimei University)

Abstract

The difference between book income and taxable income or book-tax difference has received considerable interests from both the literature and policymakers. In this chapter we discuss the concept of book-tax difference and its empirical measures and we also review the literature exploring the information contained in book-tax differences. Prior studies consistently find that book-tax differences are informative about earnings management and tax avoidance behaviors. In addition, we also discuss the concept of book-tax conformity and its empirical measures, where it is a country-level factor in contrast to book-tax difference that is firm specific. The idea of book-tax conformity is highly related to that of book-tax differences because increasing book-tax conformity is a usually claimed means to curb the growing trend of book-tax differences as well as hinder the behind earnings management or tax avoidance behaviors. Prior literature suggests that increasing book-tax conformity may incur substantial costs in decreasing the informativeness of accounting earnings and it is debated about whether book-tax conformity can deter earnings management, while these question the potential benefits of increasing book-tax conformity.

Suggested Citation

  • Nan-Ting Kuo & Shang-En Yu, 2022. "Applications of Book-Tax Difference in Accounting and Finance Research," Springer Books, in: Cheng-Few Lee & Alice C. Lee (ed.), Encyclopedia of Finance, edition 0, chapter 104, pages 2539-2555, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-91231-4_107
    DOI: 10.1007/978-3-030-91231-4_107
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    More about this item

    Keywords

    Book-Tax Difference; Book-Tax Conformity; Book Income; Taxable Income; Tax Rules; Accounting Standards;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law

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