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| Author: | Hanlon, M. Maydew, E.L. Shevlin, T. |
| Title: | An unintended consequence of book-tax conformity: A loss of earnings informativeness |
| Journal: | Journal of Accounting & Economics
2008 : DEC, VOL. 46:2-3, p. 294-311 |
| Index terms: | earnings tax impact financial reporting tax law financial accounting |
| Language: | eng |
| Abstract: | It has been proposed that increasing the conformity between accounting earnings and taxable income improves financial reporting and curtail aggressive tax planning. This study finds, though, that increasing conformity results in earnings that are less informative. The inquiry exploits a unique sample of firms forced to change from the cash method to the accrual method for tax purposes, thereby increasing their book-tax conformity. It is found that these firms experienced a decrease in earnings informativeness compared to control firms that were unaffected by the change. This seems to be the first evidence of tax law changes affecting the informativeness of accounting earnings. |
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