VALUE RELEVANCE OF BOOK AND TAX INCOME: A MACROECONOMIC CONDITIONS PERSPECTIVE

Mingjun Zhou

Accounting & Taxation, 2012, vol. 4, issue 2, 1-12

Abstract: This paper tests how macroeconomic conditions affect the value relevance of book and tax income. Based on regression coefficient estimates, more than 8% in the value relevance of book income is dependent on the interaction with a proxy for the macroeconomy. For a possible policy change where tax rules have a greater influence on financial accounting, the erosion of earnings quality will be more pronounced during economic expansion than contraction. Under such policy change, investors may lose additional information for them to price earnings based on stages of the economy.

Keywords: book income; tax income; book-tax conformity; earnings quality; macroeconomic conditions (search for similar items in EconPapers)
JEL-codes: E30 H25 M41 (search for similar items in EconPapers)
Date: 2012
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