Economics at your fingertips  

Book-tax differences and costs of private debt

Jared A. Moore and Li Xu

Advances in accounting, 2018, vol. 42, issue C, 70-82

Abstract: In this study, we test for associations between measures of book-tax differences (BTDs) and measures of private bank loan costs. Our measures of bank loan costs are: (1) interest rate spreads, and (2) security requirements. Initial results suggest a positive association between variability in total BTDs, but not levels, and private debt costs. After decomposing BTDs into their permanent and temporary components, we find that temporary BTDs (levels and variability) are consistently positively associated with costs of private debt, whereas permanent BTDs are not. Further, we find that the positive relation between BTDs and costs of private debt is attenuated for high-tax-planning firms and is stronger for loan facilities in which leading lenders have high market shares. Consistent with the findings of Ayers, Laplante, and McGuire (2010), we interpret these results as indicative of BTDs generally impacting the precision of the information conveyed in the financial statements, raising concerns about earnings quality, except where the BTDs likely result from tax planning.

Keywords: Book-tax differences; permanent book-tax differences; temporary book-tax differences; bank loan contracting (search for similar items in EconPapers)
JEL-codes: G21 H25 H32 M41 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

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:

DOI: 10.1016/j.adiac.2018.07.001

Access Statistics for this article

Advances in accounting is currently edited by Dennis Caplan

More articles in Advances in accounting from Elsevier
Bibliographic data for series maintained by Haili He ().

Page updated 2020-05-02
Handle: RePEc:eee:advacc:v:42:y:2018:i:c:p:70-82