An event study demonstrates that disclosures of changes in deferred tax valuation allowances (VA) provide information beyond contemporaneous earnings reports. Prior research shows that, in setting VA, managers consider the extent that taxable income is available from various sources for the realization of deferred tax assets (DTA). Our evidence supports a characterization where investors use VA disclosures to infer management's expectations about DTA, its realizability, and future taxable income available for realization. These findings are more generally relevant for assessing the consequences of reporting standards that require or permit management judgment, especially about future outcomes. In particular, they support the view that discretion can be a vehicle for management to communicate expectations to the benefit of investors.
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1 April 2003
Research Article|
April 01 2003
The Information Content of the Deferred Tax Valuation Allowance
Krishna R. Kumar;
Krishna R. Kumar
aThe George Washington University.
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Gnanakumar Visvanathan
Gnanakumar Visvanathan
bGeorge Mason University.
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Online ISSN: 1558-7967
Print ISSN: 0001-4826
American Accounting Association
2003
The Accounting Review (2003) 78 (2): 471–490.
Citation
Krishna R. Kumar, Gnanakumar Visvanathan; The Information Content of the Deferred Tax Valuation Allowance. The Accounting Review 1 April 2003; 78 (2): 471–490. https://doi.org/10.2308/accr.2003.78.2.471
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