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| Author: | Atwood, T.J. Drake, M.S. Myers, L.A. |
| Title: | Book-tax conformity, earnings persistence and the association between earnings and future cash flows |
| Journal: | Journal of Accounting & Economics
2010 : MAY, VOL. 50:1, p. 111-125 |
| Index terms: | earnings cash flow future USA |
| Language: | eng |
| Abstract: | In the US, calls for eliminating differences between accounting earnings and taxable income have been debated extensively. Proponents of increased book-tax conformity argue that tax compliance increases and earnings quality improves in the future. Opponents, then, argue that earnings quality will decline. This paper investigates whether the level of required book-tax conformity has an effect on earnings persistence and the association between earnings and future cash flows. An comprehensive book-tax conformity measure is developed, and it is found that earnings have lower persistence and a lower association with the future cash flows when conformity is higher. This evidence suggests that increased book-tax conformity may have a reducing effect on earnings quality. |
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