2007 Fiscal Year Final Research Report Summary
Are Book-Tax Differences Useful in Indicating the Persistence of Earnings, Accrualsand Cash Flows in Japan?
| Project/Area Number |
18530357
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| Research Category |
Grant-in-Aid for Scientific Research (C)
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| Allocation Type | Single-year Grants |
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| Section | 一般 |
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| Research Field |
Accounting
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| Research Institution | Tokyo University of Science |
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Principal Investigator |
YAMASHITA Hiroki Tokyo University of Science, School of Management, Associate Professor (70256684)
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| Co-Investigator(Kenkyū-buntansha) |
GOTO Akinori Osaka Gakuin Junior College, Department of Business Administration, Associate Professor (70331684)
HIRAI Hirohisa Nagoya University of Commerce & Business, Department of Accounting and Finance, Associate Professor (40399019)
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| Project Period (FY) |
2006 – 2007
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| Keywords | Book Income / Taxable Income / BTD |
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| Research Abstract |
This study investigates whether large book-tax differences in Japan are associated with less persistent earnings, accruals, or cash flows. Prior research in the U.S. reports that large book-tax differences are indicative of earnings that are less persistent. However, since the Japanese corporate tax code requires that financial statements for outside stakeholders form the basis for determining taxable income, Japan is an environment in which book income and taxable income correspond more closely compared to that of the U.S. Some studies and we report that book-tax differences in Japan are negative and stable. In this environment, there is no evidence that large book-tax differences are associated with less persistent earnings. In addition, we incorporate not only temporary book-tax differences, but also permanent book-tax differences into our analysis. Using taxable income data which were publicly available in Japan, we find evidence consistent with large negative book-tax differences (i.e., taxable income exceeds book income) being associated with less persistent earnings, accruals, and cash flows. The results of additional analysis are also consistent with these results. The main results do not indicate that for firm-years with large positive book-tax differences, earnings, accruals, and cash flows are less persistent as compared to firm-years with small book-tax differences. However, some results of additional analysis indicate that large positive book-tax differences are also indicative of earnings that are less persistent. Furthermore, we repeat the analysis using estimated taxable income, because taxable income data were not publicly available after 2006. The results are qualitatively the same. This study contributes to the literature that investigates information regarding book-tax differences.
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