When do book–tax differences matter for earnings persistence? The role of sales decline

Dang Anh Tuan and Nguyen Ngoc Khanh Dung

PLOS ONE, 2026, vol. 21, issue 10, 1-36

Abstract: This study examines the association between book–tax differences (BTDs), sales decline, and earnings persistence among non-financial listed firms in Vietnam. Adopting a conditional perspective, the study treats BTDs as observable signals of accounting–tax divergence, reporting environments, and transitory earnings components, while sales decline is conceptualized as an adverse operating state that may weaken the association between current and future earnings. Using a balanced panel of 325 firms from 2013 to 2023, comprising 3,575 firm-year observations, earnings persistence is measured through the association between current and one-year-ahead pre-tax book income. Earnings are further decomposed into operating cash flows and accruals to examine component-level persistence. The empirical analysis uses OLS regressions with industry and year fixed effects and firm-clustered standard errors. Additional analyses control for earnings management and tax avoidance and test the robustness of the findings using a continuous measure of sales decline, a sample excluding the COVID-19 period, and an alternative annual-decile classification of large BTDs. The results show that pre-tax book income is persistent, but its persistence is significantly lower during periods of sales decline. The evidence for BTDs is asymmetric: large positive BTDs are more consistently associated with lower earnings persistence, whereas the evidence for large negative BTDs varies across model specifications and earnings components. The three-way interactions among sales decline, BTD classifications, and current earnings are not statistically significant in the main analyses, indicating that the evidence does not support a broad BTD-specific amplification mechanism. Overall, the findings suggest that earnings persistence is shaped by earnings components, accounting–tax reporting signals, and operating conditions. The study highlights the importance of interpreting BTDs jointly with sales trends and earnings components in the Vietnamese institutional setting.

Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:plo:pone00:0344270

DOI: 10.1371/journal.pone.0344270

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