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Feasibility of Using Estimated Taxable Income to Evaluate Actual Firm Performance

Author: CaoManDan
Tutor: DaiXinMin
School: Anhui University of
Course: Accounting
Keywords: Taxable income Accounting gain Earnings Management Tax sheltered Information content
CLC: F275
Type: Master's thesis
Year: 2011
Downloads: 35
Quote: 1
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Abstract

The goal of this study to the value of the correlation study based on stock price model to empirical test taxable income whether the true performance of the company can provide information and analysis of the need for appropriate disclosure of information taxable income. Specific operation by the stock price model checking taxable income relative explanatory power and incremental explanatory power, and then according to this model, at the same time replace the stock price of the stock price model for future earnings in accordance with the extent of earnings management (accrual separation model), and the tax sheltered the degree (Desai separation model) divided 4 packet information content in analysis, testing the relative explanatory power of taxable income in different situations and incremental explanatory power. Our test results show that the study results show that the information provided with respect to the taxable income and accounting income does not have an absolute advantage, In addition, the study also found that taxable income can provide incremental information to accounting gain. Sample packet corresponding taxable income and accounting gains and losses have an impact further analysis of earnings management, earnings management have an impact on two indicators, will reduce the information content of the two, but in the case of a very high level of earnings management, the explanatory power of the taxable income is higher than the explanatory power of the accounting profit or loss that is in earnings manipulation serious cases, taxable income can provide the results of the information content of more. In other words, the lower earnings quality, taxable income is more valuable. As for the incremental information, along with the improvement in the level of earnings management, the taxable income of the incremental explanatory power has been enhanced. So, in the case of poor quality surplus, taxable income is a reference standard that can not be ignored, further support should be properly disclosed to identify corporate real performance. The tax sheltered corresponding taxable income and accounting profit or loss has an impact, have declined in both information content. But even in the top quintile of the tax sheltered, although the incremental information content decreased, but the incremental explanatory power is significantly positive, which means that even if the tax sheltered more serious, the amount of taxable income can also provide incremental information . The consolidated earnings management and tax shelters classification analysis can be seen in extreme financial circumstances, the amount of taxable income to be able to provide incremental information. So we can get the following conclusions: Taxable income not only contribute to the evaluation of results, and the amount of taxable income can provide information of extreme financial environment, this part of the information can not be obtained from the accounting profit or loss. Under the current system, the listed company is not required to disclose income tax expense of detailed tax return data, but according to this study, I believe that since the amount of taxable income can provide incremental information, appropriate disclosure of corporate information to increase taxable income information transparency, suppression of opportunistic behavior, to protect the interests of investors, and has a practical significance.

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