RATIO OF DEFERRED TAX LIABILITIES TO SHARES AS A PREDICTOR OF STOCK PRICES

Kevin A. Diehl,

Accounting & Taxation, 2010, vol. 2, issue 1, 95-105

Abstract: This research examines whether deferred tax ratios predict US stock prices. The importance of deferred tax ratios stems from the existence of two separate reporting systems. US financial reporting is subject to managerial discretion, but US tax reporting is not. Investors may prefer to review tax numbers which are free from earnings management. However, only financial numbers are publicly disclosed. Deferred tax items enable investors to translate the financial results into less subjective numbers. Deferred tax liabilities also indicate successful tax planning. Correlation and regression establish the ratio of deferred tax liabilities over shares is more related to price than traditional ratios, such as basic earnings per share, earnings per share including extra items, cash flow per share, and book value per share.

Keywords: M40 (search for similar items in EconPapers)
Date: 2010
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