The Information Content of Tax Expense for Firms Reporting Losses

Dhaliwal, Dan S.; Kaplan, Steven E.; Laux, Rick; Weisbrod, Eric H.

doi:10.1111/j.1475-679x.2012.00466.x

Cited by 63 publications

(46 citation statements)

References 63 publications

(167 reference statements)

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“…In a similar vein, Dhaliwal et al. [] find that managers’ recognition choices for deferred tax asset valuation allowances reveal information about the persistence of losses.…”

Section: Background and Predictionsmentioning

confidence: 98%

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Non‐GAAP Earnings Disclosure in Loss Firms

Leung

Veenman

2018

J of Accounting Research

120

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This study examines the incremental information in loss firms’ non‐GAAP earnings disclosures relative to GAAP earnings. Using a large sample obtained through textual analysis and hand‐collection, we posit and find that loss firms’ non‐GAAP earnings exclusions offset the low informativeness of GAAP losses for forecasting and valuation. Loss firms’ non‐GAAP earnings are highly predictive of future performance and are valued by investors, while the expenses excluded from GAAP earnings are not. Additional tests suggest that loss firms disclosing non‐GAAP profits have significantly better future performance than GAAP‐only loss firms and are not overvalued by investors. Comparing non‐GAAP earnings of profitable firms to those of loss firms, we find that loss firms’ non‐GAAP metrics are significantly more predictive and less strategic. We conclude that non‐GAAP earnings disclosures are particularly informative about loss firms and help investors disaggregate losses into components that have differential implications for forecasting and valuation.

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“…In a similar vein, Dhaliwal et al. [] find that managers’ recognition choices for deferred tax asset valuation allowances reveal information about the persistence of losses.…”

Section: Background and Predictionsmentioning

confidence: 98%

“…GAAP earnings are less useful for valuing loss firms, which makes additional sources of information more important to investors (e.g., Chen, DeFond, and Park [], Dhaliwal et al. []). We provide evidence on the information in managers’ non‐GAAP disclosures for the valuation of loss firms.…”

Section: Introductionmentioning

confidence: 99%

Non‐GAAP Earnings Disclosure in Loss Firms

Leung

Veenman

2018

J of Accounting Research

120

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“…Some research suggests that investors understand the effect of tax estimates (Givoly and Hayn ; Kumar and Visvanathan ; Dhaliwal, Kaplan, Laux, and Weisbrod ), suggesting the Dhaliwal et al. () results may be driven by “last chance earnings management” and not the complexity of tax accounting.…”

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confidence: 99%

Financial Statement Complexity and Meeting Analysts’ Expectations

Filzen

Peterson²

2015

Contemporary Accting Res

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We examine whether firms with greater financial statement complexity are more likely to meet or beat analysts’ earnings expectations. We proxy for financial statement complexity using the firm's industry and year adjusted accounting policy disclosure length. Firms with more complex financial statements are more likely to just beat expectations than just miss expectations. Firms with complex financial statements appear to use expectations management to beat expectations, but do not use earnings management. Corroborating these findings, we find analysts rely more on management guidance for more complex firms. Firms with complex financial statements are also more likely to have analysts exclude items from actual “street earnings,” but tests suggest this strategy is not specifically used by complex firms to beat expectations. The effect we document is specific to analyst forecasts and not to other alternative benchmarks.

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“…They find that separating deferred taxes into components provides value relevant information. The value relevance of deferred tax has been a popular topic in the literature (Dhaliwal et al, 2013;Graham et al, 2012). What makes this interesting is the complexity of the estimation of income taxes, which sheds light on likely information content for stock prices.…”

Section: Literature Reviewmentioning

confidence: 99%