EconPapers    
Economics at your fingertips  
 

Changes in Unrecognised Deferred Tax Accruals from Carry‐Forward Losses: Earnings Management or Signalling?

Kathleen Herbohn, Irene Tutticci and Pui See Khor

Journal of Business Finance & Accounting, 2010, vol. 37, issue 7‐8, 763-791

Abstract: Abstract: This paper examines how managers elect to use their discretion over the amount of unrecognised tax assets from carry‐forward losses that is available under the income statement method specified in AASB1020 ‘Accounting for Income Taxes’. Specifically, we consider whether changes in the amount of unrecognised deferred tax assets from carry‐forward losses, reflect managers’ incentives to opportunistically manage earnings, or communicate private information about future profitability (i.e., signalling). Using data from firms listed on the Australian Stock Exchange during the period 1999 to 2005, we find evidence consistent with income‐increasing earnings management when pre‐tax earnings are below the median analyst forecast. Interestingly, we find that the potential existence of earnings management does not reduce the capacity of changes in unrecognised deferred tax assets from carry‐forward losses to predict one‐year‐ahead performance, and to a much lesser extent, three‐year ahead performance. This result highlights the complexity of managers’ incentives in trading‐off between managing earnings toward a desired target and communicating useful information to market participants.

Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://doi.org/10.1111/j.1468-5957.2010.02207.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jbfnac:v:37:y:2010:i:7-8:p:763-791

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0306-686X

Access Statistics for this article

Journal of Business Finance & Accounting is currently edited by P. F. Pope, A. W. Stark and M. Walker

More articles in Journal of Business Finance & Accounting from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().

 
Page updated 2025-03-19
Handle: RePEc:bla:jbfnac:v:37:y:2010:i:7-8:p:763-791