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Estimates of the Magnitude of Financial and Tax Reporting Conflicts

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  • George A. Plesko

Abstract

This study examines the tax reporting consequences of financial reporting discretion. Using a matched sample of financial statements with tax returns, I provide estimates of the accuracy of tax return information inferred from financial statements. To examine the tradeoffs between financial and tax reporting, I model the relation discretionary financial accounting accruals have to discretionary federal tax accruals. The methodology takes advantage of the contemporaneous nature of reporting to mitigate econometric problems identified in previous research. I find the extent tax reporting reflects discretionary financial reporting varies dramatically by industry, profitability, and the sign of discretionary accruals. I also find managers are able to undertake tax reducing activities with less of an effect on financial reporting than tax increasing accruals, consistent with recent evidence on the differential growth of book and tax income, and with tax avoidance activities.

Suggested Citation

  • George A. Plesko, 2007. "Estimates of the Magnitude of Financial and Tax Reporting Conflicts," NBER Working Papers 13295, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:13295
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    References listed on IDEAS

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    Cited by:

    1. Evers, Maria Theresia & Finke, Katharina & Matenaer, Sebastian & Meier, Ina & Zinn, Benedikt, 2014. "Evidence on book-tax differences and disclosure quality based on the notes to the financial statements," ZEW Discussion Papers 14-047, ZEW - Leibniz Centre for European Economic Research.
    2. David P. Weber, 2009. "Do Analysts and Investors Fully Appreciate the Implications of Book†Tax Differences for Future Earnings?," Contemporary Accounting Research, John Wiley & Sons, vol. 26(4), pages 1175-1206, December.
    3. Jacob Thomas & Frank Zhang, 2007. "Tax Expense Surprises and Future Returns," Yale School of Management Working Papers amz2531, Yale School of Management, revised 01 Feb 2008.
    4. Gebhardt Heinz & Siemers Lars-H. R., 2017. "Die relative Steuerbelastung mittelständischer Kapitalgesellschaften: Evidenz von handelsbilanziellen Mikrodaten," Zeitschrift für Wirtschaftspolitik, De Gruyter, vol. 66(1), pages 1-35, April.
    5. Jacob Thomas & Frank Zhang, 2007. "Tax Expense Surprises and Future Returns," Yale School of Management Working Papers amz2531, Yale School of Management, revised 01 Feb 2008.
    6. Rebekka Kager & Deborah Schanz & Rainer Niemann, 2011. "Estimation of Tax Values Based on IFRS Information: An Analysis of German DAX30 and Austrian ATX Listed Companies," Accounting in Europe, Taylor & Francis Journals, vol. 8(1), pages 89-123, June.
    7. Aníbal Báez-Díaz & Pervaiz Alam, 2013. "Tax conformity of earnings and the pricing of accruals," Review of Quantitative Finance and Accounting, Springer, vol. 40(3), pages 509-538, April.
    8. Jiménez-Angueira, Carlos E., 2018. "The effect of the interplay between corporate governance and external monitoring regimes on firms' tax avoidance," Advances in accounting, Elsevier, vol. 41(C), pages 7-24.
    9. Evers, Maria Theresia, 2015. "Evidence on Book-tax Differences and Disclosure Quality Based on the Notes to the Financial Statements," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113127, Verein für Socialpolitik / German Economic Association.

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    More about this item

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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