Determinants and Drivers of Large Negative Book-Tax Differences: Evidence from S&P 500
School of Accountancy, Wichita State University, Wichita, KS 67260, USA
J. Risk Financial Manag. 2025, 18(6), 291; https://doi.org/10.3390/jrfm18060291
Submission received: 2 April 2025
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Revised: 10 May 2025
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Accepted: 15 May 2025
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Published: 23 May 2025
(This article belongs to the Section Applied Economics and Finance)
Abstract
:Temporary book-tax differences (BTDs) serve as critical proxies for understanding corporate earnings management and tax planning. However, the drivers of large negative BTDs (LNBTDs)—where book income falls below taxable income—remain underexplored. This study investigates the determinants and components of LNBTDs, focusing on their relationship with deferred tax assets (DTAs) and liabilities (DTLs). Utilizing hand-collected data from the tax disclosures of S&P 500 firms’ 10-K filings (2007–2023), I analyze 4685 firm-year observations to identify specific accounting items driving LNBTDs. Findings reveal that deferred revenue, goodwill impairments, R&D, CapEx, environmental obligations, pensions, contingency liabilities, leases, and receivables are significant contributors, often generating substantial DTAs due to timing mismatches between book and tax recognition. Notably, high-tech industries, like the pharmaceutical, medical, and computers and software industries, exhibit pronounced LNBTDs, driven by upfront revenue recognition for tax purposes and deferred recognition for financial reporting, capitalization, amortization and depreciation effects, and other deferred tax components. Regression analyses confirm strong associations between these components and LNBTDs, with asymmetry in reversal patterns suggesting that initial differences do not always offset symmetrically over time. While prior research emphasizes large positive BTDs and tax avoidance, this study highlights economic and industry-specific characteristics as key LNBTD drivers, with limited evidence of earnings manipulation via deferred taxes. These insights enhance the value relevance of deferred tax disclosures and offer implications for reporting standards, tax policy, and research into BTD dynamics.
1. Introduction
Book-tax differences—discrepancies between financial accounting (book) income and taxable income—have been a central topic in financial accounting and tax research. These differences arise due to distinct regulatory frameworks governing financial reporting and IRS regulations, reflecting differences in revenue recognition, expense treatment, and valuation methodologies (FASB, 2015; IASB, 2020). Temporary BTDs, which reverse over time, generate deferred tax assets and liabilities, shaping firms’ financial statements and tax obligations. While prior research predominantly focusses on large positive BTDs1 (LPBTDs), where book income exceeds taxable income, linking them to earnings management, tax avoidance, and aggressive financial reporting, relatively little attention has been given to large negative BTDs (LNBTDs), where taxable income surpasses book income. The existence of a large negative BTD subset is contrary to both earnings management and tax avoidance theories. A negative BTD means the reported taxable income (TI) number is greater than the financial earnings or book income (BI) number. When a company reports lower financial earnings under GAAP to investors in the financial statements, while reporting positive taxable income higher than its book income; therefore, the incomes and subsequently the negative BTD number go against both earnings management and tax avoidance arguments. I call this the large negative BTD puzzle. In this current paper, I analyze the LNBTD phenomena by highlighting its deferred tax drivers and the determinants, industry patterns, and economic implications of LNBTDs.
The role of deferred tax components in shaping BTDs remains a subject of debate. Under SFAS 109 (now ASC 740), firms must recognize DTAs for future deductible amounts and DTLs for future taxable amounts, yet the valuation relevance of these items is still contested. While some scholars argue that deferred tax components provide investors with insights into earnings persistence and future tax obligations (Guenther & Sansing, 2000; Amir et al., 2001), others suggest that asymmetric reversals, tax rate changes, and managerial discretion reduce their predictive value (Hanlon, 2005; Morton, 2019). This study examines these issues by identifying specific deferred tax components that drive LNBTDs and assessing their economic significance across industries.
Using hand-collected data from S&P 500 firms’ 10-K filings from 2007 to 2023, this study analyzes 4685 firm-year observations to pinpoint the major contributors to LNBTDs. Key findings reveal that deferred revenue, goodwill impairments, research and development, capitalized costs, environmental obligations, pensions, contingency liabilities, financing leases, and bad debt reserves play a significant role in creating LNBTDs. LNBTDs are more pronounced in high-tech R&D intensive industries, such as pharmaceuticals, computers and software, biotech, and capital-intensive sectors. These industries display deferred revenue, revenue recognition mismatch, R&D spending, R&D credit, and asset capitalizing/expensing methods that contribute to LNBTD persistence.
One of the study’s key insights is that while LPBTDs have been associated with tax avoidance and earnings management, LNBTDs appear to arise more from economic fundamentals and accounting treatment choices than from deliberate income manipulation. Firms with persistent LNBTDs may be engaged in long-term investment strategies, not just short-term earnings management. I conjecture that LNBTDs reflect various asset investments instead of financial distress or aggressive tax behavior. The results show that LNBTDs span diverse industries, driven by investment in CapEx, R&D, intangibles, deferred revenue, tax credits, and long-term contracts. High-tech sectors (e.g., biotech, software) exhibit LNBTDs from R&D capitalization and stock compensation, while capital-intensive industries (e.g., manufacturing, energy) generate them via depreciation and pensions. Multinationals show LNBTDs from foreign tax credits and GILTI, and retail/consumer goods (e.g., e-commerce) from gift cards and rebates. Sectors like healthcare, aerospace, real estate, and hospitality reflect industry-specific treatments and investments, not uniform distress or manipulation, per regulatory and economic incentives.
Why Study Large Negative BTDs?
While prior research has examined large positive BTDs due to their ties to earnings management and tax avoidance, large negative BTDs remain underexplored despite its growing presence in high-tech, R&D-intensive, and capital-heavy sectors. This gap is significant because LNBTDs can affect investors’ perception of firm profitability, tax transparency, and valuation, especially in industries where tax assets deferred from investments or timing mismatches distort the relationship between book and taxable income. Understanding LNBTDs is relevant in today’s evolving tax environment (e.g., post-TCJA R&D capitalization under IRC §174), where financial statement users, regulators, and policymakers need more insights on how economic fundamentals drive tax and financial reporting divergence. By clarifying these asymmetries and their drivers, the study contributes to both academia and practice, earnings quality, and tax compliance.
I attempt to address the underexplored side of large BTDs, by identifying accounting items driving LNBTDs, providing empirical evidence on the role of deferred revenue, goodwill, R&D credits, and capitalization. This study reveals differences in BTDs across industries, illustrating how structural elements, like revenue structures in retail and software, R&D expenditures in technology, and capital-intensity, shape LNBTDs. Furthermore, it questions the prevailing notion that large BTDs signify earnings manipulation. It offers a different viewpoint that connects LNBTDs to underlying economic drivers and evolving tax policy dynamics.
Also, by analyzing the determinants and accounting drivers of LNBTDs, I try to explain how deferred tax disclosures, industry-specific practices, and long-term asset investments shed light on the LNBTD puzzle. The findings of the paper give insights to financial statement users, investors, regulators, and policymakers. These findings emphasize the need for extensive deferred tax disclosures to improve transparency and financial reporting reliability. Standard-setters, particularly under ASC 740, can leverage our evidence of LNBTD to enhance deferred tax disclosures, improving transparency.
2. Literature Review
BTDs and deferred taxes, reflecting discrepancies between financial and taxable income, are key in accounting and tax research. Since the 1990s, BTDs have drawn attention for their role in firm valuation, earnings management, tax avoidance, and the debate on financial-tax reporting convergence (Watts & Zimmerman, 1986). Temporary BTDs, caused by timing differences, create DTAs and DTLs, while permanent BTDs stem from non-reversible items, like tax-exempt income. While large positive BTDs are linked to earnings manipulation, large negative BTDs (LNBTDs) are less studied. This lack of attention to LNBTDs stem from the field’s historical focus on large positive BTDs linked to earnings management and tax avoidance, rather than a lack of relevance on the part of LNBTDs. My study addresses this gap by showing that LNBTDs offer unique insights into firms’ long-term investment strategies and industry-specific practices, which are critical for stakeholders. Please see Table A3 for a comparison of BTD literature and this study’s contributions.
2.1. Valuation Relevance of Deferred Taxes
Deferred tax items are central to understanding firm value as they reflect the future tax effects of accounting decisions. Sansing (1998) first modeled temporary BTDs through the lens of corporate investment, while Guenther and Sansing (2000) emphasized that DTAs represent the present value of expected tax benefits and DTLs indicate future tax liabilities. Empirical studies, such as Amir et al. (2001) and Skinner (2008), confirm that aggregated DTAs and DTLs inform investors about future cash flows, but their value depends on realization certainty. Skinner (2008), studying the 1997 banking sector collapse in Japan, gives evidence on the role of deferred taxes concerning financial crises.
Görlitz and Dobler (2023) and Edeigba et al. (2023) further highlight the importance of component-level and international (IAS 12) disclosure impacts, especially in high-growth firms. Beyond valuation, BTDs also contain critical information about firm behavior. SFAC asserts that comparing book and taxable income enhances reporting reliability, as tax rules are generally more conservative than GAAP (Watts & Zimmerman, 1986). Research links large BTDs to financial distress, credit ratings, stock price responses, and governance practices. However, prior work has focused heavily on large positive BTDs (LPBTDs), with limited attention to large negative BTDs (LNBTDs). This neglect may obscure meaningful patterns tied to industry norms, regulatory constraints, or long-term investment strategies—factors that go beyond discretionary reporting, limiting our understanding of BTD informativeness.
2.2. Book-Tax Difference
The growing gap between book and taxable incomes has sparked debate on whether BTDs reflect earnings manipulation or legitimate economic differences (Tang & Firth, 2012). The book-tax conformity (BTC) perspective argues that reducing BTDs improves reporting integrity, while the book-tax divergence (BTD) view attributes differences to business and tax factors (FASB, 2015; IASB, 2020, 2018). Tax avoidance research focuses on LPBTDs, linking them to IRS audit risk (Mills, 1998), earnings manipulation, and tax sheltering (Desai, 2003; Desai & Dharmapala, 2006; Wilson, 2009). Bartov and Mohanram (2004) showed BTDs affect banking sector equity valuation. LNBTDs, however, are less understood; Hanlon (2005) noted their impact on earnings persistence, but their sources—downward management, industry factors, or regulations—remain unclear. Unlike LPBTDs tied to discretionary accruals, LNBTDs may stem from economic factors like revenue deferrals or tax credits. BTDs proxy earnings management (Phillips et al., 2003, 2004), with GAAP flexibility enabling accruals to meet targets (Burgstahler & Dichev, 1997; Mills & Newberry, 2001). Hanlon (2005) and Blaylock et al. (2012) tied LPBTDs to lower earnings quality, while LNBTDs may reflect speculative management or economic drivers like deferred revenue (Seidman, 2010; Lev & Nissim, 2004). Guenther (2011) and Drake (2012) linked BTDs to firm life cycles. Three literature gaps persist: (1) limited LNBTD focus, (2) overlooked component analysis (Hanlon & Heitzman, 2010), and (3) the need for LNBTD evidence in standards debates (FASB, 2015; IASB, 2020). This study uses S&P 500 10-K data (2007–2023) to explore LNBTD drivers, focusing on specific items, industry contexts (e.g., SaaS), and economic versus manipulative roles, building on Sansing (1998), Hanlon (2005), and Görlitz and Dobler (2023).
3. Hypothesis Development
Large positive BTDs have been widely linked to tax avoidance and earnings management through discretionary accruals and aggressive tax planning (Desai & Dharmapala, 2006; Phillips et al., 2003). In contrast, large negative BTDs (LNBTDs) remain underexplored. Hanlon and Heitzman (2010) emphasized the need to study BTD components, noting that aggregate measures mask distinctions between temporary and permanent BTDs. Earlier studies (e.g., Lev & Nissim, 2004) overlooked the role of specific deferred tax items.
This study addresses that gap by detailing key deferred tax components—listed in Table A1—and highlighting rule differences between the Internal Revenue Code and U.S. GAAP in Table A2. I argue that items such as deferred revenue, accounts receivable, capital expenditures, R&D, leasing, tax credits, and goodwill impairments are key drivers of LNBTDs, often resulting from timing differences and economic fundamentals rather than earnings manipulation.
For example, deferred revenue in SaaS is taxed upfront but recognized over time; goodwill impairments reduce book income without tax deductions; and R&D expenses create deferred tax assets due to delayed recognition. Accelerated depreciation under IRC §168 contrasts with GAAP’s straight-line approach, affecting CapEx-heavy firms, while leasing (ASC 842) and accounts receivable add further timing gaps. Tax credits like R&D carryforwards increase DTAs without immediate income effects. These findings challenge the assumption that all large BTDs reflect earnings management (Graham et al., 2012). The first hypothesis tests whether these specific deferred tax items explain the magnitude and direction of BTDs, supporting a more granular analysis (Hanlon & Heitzman, 2010).
Hypothesis 1.
Specific deferred tax components—deferred revenue, receivables, CAPX, R&D, leasing activity, tax credits, and goodwill—are primary determinants of large negative BTDs.
BTD Reversal
Temporary BTDs are expected to reverse over time as book and tax recognition align. However, the reversal process—especially for large negative BTDs (LNBTDs)—may not be symmetrical. Prior research (e.g., Hanlon, 2005) shows that BTDs affect earnings persistence, but LNBTDs may behave differently from large positive BTDs (LPBTDs) due to economic and structural factors. This study finds that LNBTDs often do not reverse evenly, for several reasons. First, timing mismatches may stretch reversals over many years (e.g., bad debt or pension obligations), unlike their sharp initial effects. Second, tax rate changes (Scholes et al., 1992) can reduce the value of reversals; for example, a DTL created at 30% may reverse at 25%, lowering its impact. Third, asset changes like goodwill impairments or early write-offs can interrupt or permanently alter reversal paths. Fourth, one-time items like deferred revenue may cause large LNBTDs when income is taxed upfront but recognized slowly for books, especially in SaaS firms. These reversals are staggered and depend on contracts or market conditions.
Empirical results confirm strong links to LNBTDs, but no similar association with LPBTDs, suggesting that large BTDs do not simply reverse into their opposites. LPBTDs are often linked to short-term, discretionary accruals (Phillips et al., 2003), while LNBTDs come from long-term, non-discretionary sources, like asset retirement obligations. Therefore, Hypothesis 2a argues that LNBTDs follow asymmetric reversal patterns, challenging the idea that all BTDs reverse uniformly over time.
Hypothesis 2a.
Initial BTDs, particularly large negative BTDs, do not offset symmetrical over time, and have an asymmetrical reversal pattern.
While Hypothesis 2a posits asymmetry in the reversal patterns of initial BTDs, particularly for large negative ones, certain firms exhibit more predictable reversal behaviors tied to their investment strategies. On the other hand, firms driven by long-term investment strategies—such as capitalized research and development (R&D) and capital expenditures (CapEx)—demonstrate greater symmetry in reversal patterns compared to those with short-term operational LNBTDs (e.g., rebates, bad debt reserves).
CapEx and R&D represent asset-intensive, long-term investments or projects with defined useful lives, governed by structured accruals reversal in amortization and depreciation schedules under GAAP (ASC 360/ ASC 730) and tax rules (IRC § 168/ IRC § 174). This structure ensures that temporary differences—such as accelerated tax depreciation timing or R&D amortization—reverse predictably over time, unlike discretionary items (e.g., deferred revenue), which lack symmetrical reversal due to economic factors and contract-specific timing.
Hypothesis 2b.
The observed symmetry in Large (Negative-Positive) BTD reversal patterns are driven by High R&D and CAPX Asset intensive investments
Prior research has largely associated large positive BTDs (LPBTDs) with earnings management and tax avoidance, emphasizing the role of discretionary accruals and aggressive tax planning (e.g., Desai & Dharmapala, 2006; Phillips et al., 2003). In contrast, large negative BTDs (LNBTDs) have received less attention and are often assumed to indicate financial distress or downward earnings manipulation (Hanlon, 2005). This study challenges that assumption, arguing that LNBTDs are primarily driven by structural economic and regulatory factors rather than manipulative intent.
Empirical findings show that LNBTDs are more closely linked to components such as deferred revenue, goodwill impairments, and tax credit carryforwards than to discretionary accruals (Table 6). For example, SaaS companies face significant LNBTDs due to upfront tax recognition under IRC § 61 and delayed GAAP revenue recognition per ASC 606. Similarly, goodwill impairments reduce book income under ASC 350 but are not deductible under IRC § 197, leading to persistent LNBTDs in M&A-heavy sectors, like telecommunications. In R&D-intensive firms, tax credit carryforwards under IRC § 41 create DTAs without immediate tax offsets, amplifying LNBTDs. These patterns suggest that LNBTDs arise from industry-specific accounting treatments and tax rules, such as TCJA-mandated R&D capitalization (IRC § 174), rather than from earnings manipulation typically seen in LPBTDs (Blaylock et al., 2012). Graham et al. (2012) support this view, noting that LNBTDs often reflect economic activities. The data in this study reinforce that point, showing consistent LNBTD patterns across sectors.
Unlike LPBTDs, which often reverse as tax avoidance strategies unwind (Wilson, 2009), LNBTDs frequently reflect temporary timing differences (e.g., deferred revenue, depreciation) and permanent BTDs (e.g., goodwill). Therefore, Hypothesis 3 posits that LNBTDs are rooted in economic fundamentals, industry regulations, and tax compliance—not in earnings distortion. This perspective also aligns with recent debates on deferred tax accounting standards, such as SFAS 109, ASC 740, and IAS 12, highlighting the need for component-level analysis to understand the strategic implications of LNBTDs.
Hypothesis 3.
The large negative BTD firm-year observations stem from economic fundamentals, Industry regulations and IRC tax rules rather than earnings manipulation or tax avoidance (LPBTDs).
4. Research Design and Variable Construction
This section outlines the research design for examining LNBTDs deferred tax determinants, detailing variable construction, regression models, and data sources. The study employs ordinary least squares (OLS) and logistic regression analyses to test three hypotheses: H1, which posits that specific deferred tax components drive LNBTDs; H2a and H2b, which examine asymmetric and CapEx/R&D-driven reversal patterns, respectively; and H3, which argues that LNBTDs stem from economic fundamentals rather than earnings management or tax avoidance.
I construct a comprehensive set of variables to investigate the determinants and drivers of large negative BTDs among S&P 500 firms, focusing on temporary BTDs and their associated deferred tax components. The primary dependent variable, Temporary BTD (BTDTEMP), is calculated as the sum of federal and foreign deferred taxes (Compustat items TXDFED and TXDFO), grossed up by the statutory tax rate (35% pre-TCJA, 21% post-2018) and scaled by average total assets (Compustat AT), using total deferred taxes (Compustat TXDI) when TXDFED or TXDFO is missing, to capture temporary differences driving deferred tax assets and liabilities. To isolate significant negative BTDs, Large Negative BTD is defined as a dummy variable equal to 1 for firm-year observations in the lowest quintile of BTDTEMP, and 0 otherwise, while Extremely Large Negative BTD (LLNBTD) is a dummy variable equal to 1 for the bottom 250 observations based on BTDTEMP ranking, and 0 otherwise, following methodologies in prior literature (e.g., Phillips et al., 2003). Small Negative BTD (SNBTD) is a dummy variable equal to 1 for negative observations in the third quintile, used to compare moderate differences, and Large Positive BTD is a dummy variable equal to 1 for the highest quintile, used to contrast with LNBTDs. Total BTD (BTDTOTAL) is computed as pre-tax net income (Compustat PTBI) minus taxable income (Compustat TI), scaled by total assets, to contextualize temporary versus permanent differences. Independent variables, manually collected from tax footnotes in S&P 500 firms’ 10-K filings, include key deferred tax components hypothesized to drive LNBTDs: Deferred Revenue (REVENUEDEF), representing payments for undelivered goods or services (e.g., SaaS subscriptions), which are recognized over time under GAAP (ASC 606) but taxed upfront under IRC § 61, creating DTAs; Goodwill Impairments (GOODWILL), non-cash charges that reduce book income (ASC 350) but are non-deductible for tax purposes (IRC § 197); Research and Development (RND), encompassing capitalized costs (ASC 730) and R&D tax credits (IRC § 41) that generate DTAs due to delayed book recognition; Capital Expenditures (CAPX), with accelerated tax depreciation (IRC § 168) versus GAAP straight-line depreciation (ASC 360); Operating Leases (LEASEO), recognized on a straight-line basis under GAAP (ASC 842) with front-loaded expenses, versus tax deductions aligned with payments (IRC § 162); Environmental Obligations (OBLIGATION), recognized when probable under GAAP but tax-deductible upon payment (IRC § 162); Pensions (PENSION), accrued under GAAP (ASC 715) versus tax deductions based on contributions (IRC § 404); Accounts Receivable (AR), recognized when earned under GAAP but taxed upon cash receipt; and Valuation Allowance (VA), a contra-account reducing DTAs when future taxable income is unlikely. Additional components, such as asset retirement obligations and tax credits, are included as other deferred tax determinants of large BTDs, with full definitions in Appendix A Table A1.
4.1. Data Collection Procedure
The S&P 500 index2 is a reliable research source due to its high accuracy and minimal missing data, serving as a benchmark for U.S. stock market. Widely used by investors, analysts, and fund managers, it effectively assesses market health and compares investment performance. Its composition, updated periodically to reflect market shifts, includes 500 companies across diverse sectors, such as technology, healthcare, financials, manufacturing, and energy. I collected 10-K annual reports from two primary sources: the EDGAR filing system3 and company Investor Relations websites, covering 2007 to 2023. Although the S&P 500 lists 500 firms, I excluded 23 companies added only in 2023 (single-year data) or disqualified in 2024, yielding an initial sample of 5544 observations from 472 firms. After merging this DTA dataset with Compustat data, I removed observations lacking deferred tax table details or key variables (e.g., CapEx, DTL, DTA, Pre-tax income, Total Assets), resulting in a final sample of 4685 firm-year observations across 402 firms. Year ranges vary, as some firms were added later or dropped for failing to meet S&P 500 criteria.4 Please refer to Table 1 for a detailed step-by-step report.
4.2. Final Sample
All S&P 500 companies, which are publicly traded U.S. firms adhering to GAAP, have implemented SFAS No. 109.5 However, differences in its application arise from firm-specific tax structures, industry practices, and variations in temporary differences driving deferred taxes. After identifying deferred tax components, I analyzed their influence on deferred tax expenses, detailing the mechanisms of key items (see Table A1 for a complete description and Table A2 for GAAP vs. IRC). Selecting firms from the S&P 500 index ensures that the sample includes large-cap companies adhering to U.S. GAAP standards, including SFAS No. 109, while typically excluding regulated industries, bankruptcies, and foreign subsidiaries. This approach is common in accounting and finance research to maintain consistency and relevance in financial reporting studies. For instance, studies like the Lev and Nissim (2004) employ similar selection criteria to analyze the implications of deferred tax assets and liabilities under SFAS No. 109.
4.3. Descriptive Statistics Analysis
Table 2 identifies significant deferred tax components based on mean values and observation counts, highlighting Operating Lease, Employee Obligations, Pensions, Capital Loss and NOL Carryovers, ROU, Contingencies, VA, R&D credit, CAPX, and R&D as potential drivers. Components with means exceeding 0.02 include Depreciation and Amortization (−0.065, 717), NOLs (0.024, 2890), VA (−0.032, 2892), GILTI (−0.073, 39), Operating Lease (0.022, 776), and Acquisition Cost (−0.027, 784), indicating strong deferred tax influence. Items with means above 0.01—Pensions (0.015, 1046), CAPX (0.012, 667), Capitalized R&D (0.011, 472), Employee Obligations (0.01, 1787), Capital Loss (0.019, 895), Tax credit (0.012, 818), R&D credit (0.014, 190), ROU (−0.016, 726), Subsidiary Investments (−0.018, 623), and Deferred Foreign Earnings (−0.016, 585)—also suggest notable effects. Higher means and observation imply greater significance in generating temporary BTDs and deferred tax impacts.
Table 3 summarizes Compustat variables for BTD and DTL calculations. In the sample the Total Assets average value is USD 62.7B, Total Revenue mean is USD 21.2B, and net DTL has a mean of USD 452M. Large balance sheets suggest major corporations. R&D and CAPX vary widely (CAPX Mean: USD 1.06B, Max: USD 61.05B), reflecting diverse investment levels. Pretax income ranges from USD −23.1B losses to USD 104.8B profits, showing varied firm performance.
4.4. Potential Correlations
Table 4 reports Pearson and Spearman correlation coefficients among various deferred tax components to identify significant associations that may drive BTDs. It serves as a preliminary step in the empirical analysis, highlighting relationships between deferred tax items grouped by shared characteristics (e.g., asset and investment-related, accrual-related, financial-tax adjustments), setting the stage for the regression analyses in later tables. This table helps establish which components are interrelated and potentially influential in shaping BTDs, aligning with the study’s goal of understanding the determinants of large negative BTDs (LNBTDs). Table 5 explains the reasoning for some correlations.
Panel A correlates asset and investment items (e.g., capitalization, depreciation) common in high CAPX and R&D-intensive sectors, showing strong positive associations between R&D amortization and credits (Pearson: 0.23 ***/Spearman: 0.12 ***), D&A and asset acquisition (Pearson: 0.60 ***), and negative correlations between ROU and R&D credits (Pearson: −0.06 ***/Spearman: −0.09 ***), reflecting divergent tax treatments. Panel B shows accrual-related correlations, with positive links between stock compensation and accruals (Pearson: 0.98 ***), payroll and receivables (Spearman: 0.09 ***), and warranty-payroll (Spearman: 0.16 ***), and negative AR-ADA correlations (−0.12 ***), indicating strategic accrual management. Panel C highlights financial and tax adjustment correlations, including swaps and partner investments (Pearson: 0.69 ***/Spearman: 0.15 ***), UTB and rebates (Pearson: 0.09 ***), and SWAPS-adjustments (Spearman: −0.11 ***), showing interdependencies in financial and tax planning strategies.
5. Empirical Results
Empirical evidence supports my hypotheses. Firms with long-term, asset-intensive investment strategies—such as capitalized R&D and CapEx—exhibit more symmetric reversal patterns between large negative and positive BTDs than firms with short-term operational LNBTDs (e.g., rebates, bad debt reserves), as seen in Table 6, Table 7, Table 8 and Table 9. Structured amortization and depreciation (e.g., GAAP’s ASC 360/730 vs. IRC §168/174) ensure predictable reversals: initial negative BTDs (TI > BI) transition into positive BTDs over time. Significant coefficients support this: CapEx (LNBTD = 13.694 ***, LPBTD = 9.541 ***), R&D (LNBTD = 21.022 ***, LPBTD = 10.606 ***; LLNBTD = 12.040 ***, LLPBTD = 14.52 ***). In contrast, operational items like deferred revenue (REVENUEDEF-LNBTD = 30.416 ***) lack such symmetry due to timing variability. This pattern is most pronounced in manufacturing, energy, and tech industries, reflecting systematic investment cycles rather than ad hoc operational effects. These findings support Hypotheses 2a and 2b: large BTD symmetric reversals are primarily driven by structured CapEx and R&D investments, aligning with Lev and Nissim (2004), and contrasting with the irregular patterns observed by Hanlon (2005).
5.1. Main Deferred Tax Components
Generally, managers have discretion over valuation allowances, deferred revenue, stock-based compensation, goodwill impairments, and uncertain tax positions, influencing the timing and recognition of DTA(L)s. This discretion—e.g., in judging future profitability for valuation allowances, timing revenue recognition, structuring compensation, or estimating tax positions—enables earnings management by manipulating DTA(L)s and uncertain tax benefits. Conversely, less discretionary items, like depreciation, pension obligations, warranty reserves, and NOL carryforwards, are primarily governed by tax laws (e.g., IRC § 404, 461), limiting managerial control. These items create temporary BTDs (e.g., accelerated depreciation DTLs, pension LNBTDs) with fixed timing, reducing manipulation opportunities. These items are driven by economic activities, industry characteristics, and strategic investment decisions rather than accruals management. Please see the Appendix A for a detailed list of discretionary deferred tax components.
Table 6 presents OLS regression results that quantify the relationship between specific deferred tax components and DTL(A)s and BTDs.
Table 7 represents the results from a logistic regression association between large BTD binary variables and the deferred tax items, focusing on their directional impact and statistical significance. Specifically, it investigates the relationships between several deferred tax components and different classifications of negative BTDs. I recognize 10 deferred tax items as the main drivers of large negative BTDs. These DTA components particularly include asset retirement obligation, accounts receivable, leases, CAPX and R&D capitalization, deferred revenue, compensation and payroll, pensions and benefits, accrued expenses and credits.
Asset retirement obligations (AROs) involve retiring or restoring assets, such as decommissioning oil rigs. Under GAAP (ASC 410-20), AROs are recorded at fair value when incurred, with capitalized asset retirement costs amortized and ARO liabilities accrued, reducing book income over time (NBTD). For tax purposes (IRC § 162), deductions are allowed only when settled, creating a mismatch. AROs generate large negative BTDs (Table 7: LLNBTD = 35.06 ***; BTD-ΔAROcoeff = −2.53 ***) as GAAP expenses reduce book income early, while tax deductions are deferred, keeping taxable income higher. Table 9 shows that AROs are common in oil and gas (14.52 ***), construction (2.60 ***), and heavy machinery (1.16 ***).
Accounts receivable creates BTDs due to revenue recognition differences. GAAP recognizes revenue when earned (accrual basis), increasing book income, while tax rules delay recognition until cash receipt (cash basis), reducing taxable income (LPBTD). This generates a DTL for future tax obligations (DTLcoeff = 1.99 ***, ΔDTLcoeff = 7.23 ***), reversing upon collection (LNBTD). AR’s stable nature limits large positive BTDs, but longer collection cycles increase DTLs. When cash is received, taxable income exceeds book income, driving large negative BTDs (AR-LNBTDcoeff = 29.63 ***), reflecting significant, asymmetrical timing differences in firms with extended receivables.
Operating lease expenses are recognized on a straight-line basis under GAAP (ASC 842), with interest and amortization reducing book income more than taxable income early on (LNBTD), especially if lease payments (tax deductions) are lower or deferred. For tax purposes (IRC § 162), deductions align with payments, which may not match GAAP’s straight-line expense. In payment leases, lower early payments result in higher taxable income than book income. The table findings confirm this (BTDcoeff = −0.22 ***, DTAcoeff = 6.28 ***). Later, when GAAP expense falls below tax deductions, book income exceeds taxable income, reducing DTAs as book and tax align (LPBTD).
Financing leases enable lessees to acquire equipment (e.g., machinery, aircraft) with payments over time. GAAP (ASC 842) often provides ownership options. Lessees record a ROU asset and lease liability. Then, they amortize the ROU and reduce liability, front-loading interest and depreciation. For tax purposes, these are often treated as operating leases, deducting payments as rent without ROU asset or liability recognition. I expect this to create negative BTDs and DTAs early on (higher GAAP expenses), reversing to DTLs later, as tax deductions exceed GAAP expenses. Results show initial deferred assets (4.35 ***) and extreme LNBTD associations (LLNBTD-LEASEcoeff = 39.96 ***).
Payroll, including salaries, wages, and employee payroll can impact BTDs and DTAs in several ways due to timing and accrual treatments. Temporary differences might result in DTAs initially but could lead to DTLs as the differences reverse over time. The specifics depend on the nature of the compensation and the accounting policies applied. Payroll and salaries initially create tax asset deferrals (DTAcoeff = 1.36 ***) because GAAP (ASC 710) recognizes expenses early on as it is being accrued in the accounting records, reducing book income earlier than tax rules (BI < TI = NBTD). IRC code section 404 allows tax deductions only when payment has been made. A large tax income and smaller GAAP income results in negative BTDs also (Table 7-SNBTDcoeff = 5.81 ***). The tax deferral generates a future tax benefit as the deferred tax deduction aligns with eventual cash payments. Tables show payroll being negatively (positively) associated with DTL (DTA) and changes in DTL (Table 6-DTLcoeff = −0.71 ***, ΔDTLcoeff = −0.52 ***).
Pension accounting generates BTDs due to timing differences between GAAP (ASC 715) and tax (IRC §§ 404, 430) in recognizing pension expenses and contributions. Under GAAP, pension costs are accrued based on service and actuarial adjustments. Tax deductions follow actual contributions. In early years, when GAAP expenses exceed tax deductions, a DTA forms (BI < TI = NBTD). As contributions increase or plans become fully funded, tax deductions can exceed GAAP expenses, creating a DTL (BI > TI). Thus, pension-related BTDs evolve over time. Regression results confirm this dynamic, with pension obligations significantly associated with both large positive BTDs (13.477 ***) and large negative BTDs (21.373 ***), highlighting their dual impact and BTD sign reversal.
Benefits that are accrued benefits and stock compensation generates DTAs initially because GAAP (ASC 718) recognizes the expense over the vesting period (reducing BI), while IRS (IRC § 83 and 404) defers the tax deduction until exercise or vesting, creating a negative BTD (BI < TI) and a future tax benefit (DTA). Generally, these arrangements are expensed over the vesting period for book purposes, with tax deductions deferred until vesting or exercise. However, the table’s weak associations could potentially be a result of contradicting benefit and equity incentives.
Right of use and lease liabilities is recognized as a liability under ASC 842 on the balance sheet, according to operating lease accounting codes. GAAP amortizes ROU assets over the lease term, while tax rules deduct lease payments as incurred, creating timing deferred tax assets in the first periods of operation. However, I do not expect ROU to be a major LNBTD driver. Early on, GAAP expenses lag behind tax deductions, resulting in a DTA and negative BTD (BI < TI), which reverses as timing shifts. Empirically, ROU assets significantly influence BTDs, with a strong ROU–DTL coefficient (1.34 ***, t = 9.56) and a positive ROU–BTD coefficient (0.255 ***, t = 2.6), indicating upward pressure on BTDs.
Foreign tax credits (FTCs) do not directly create BTDs as they offset U.S. taxes rather than defer payments, but they influence deferred taxes when book and tax rates differ, reducing U.S. tax liability and thus lowering DTLs. FTC carryforwards create DTAs for future tax reductions, though a valuation allowance may reduce the DTA if taxable income limits usage (BTDcoeff = −0.275 ***, DTAcoeff = 1.429 **). Excess FTCs or non-deductible foreign expenses may cause permanent BTDs. Federal credit similarly affects DTLs and BTDs by reducing tax liability, with table results confirming this parallel impact, aligning with FTC dynamics.
R&D tax credits lower tax liability for qualifying research, reducing tax expense without affecting GAAP book R&D costs. R&D credits can indirectly reduce taxable income more than book income through capitalized R&D expensing, creating temporary BTDs. Under ASC 740, credits are recognized as DTAs when earned, cutting current tax expense and boosting book income. Under IRC § 41, credits reduce taxable income only when applied, with excess credits carried forward as DTAs, and reversing as they offset future taxes. Empirical results show strong positive links (LNBTDcoeff = 18.868 **, LLNBTDcoeff = 27.860 ***), making R&D credits an indirect key driver of LNBTDs.
Deferred revenue creates BTDs due to differences in revenue recognition for financial reporting vs. tax accounting. Under GAAP, revenue is recognized when earned (over time as goods or services are delivered), while for tax purposes, revenue is often recognized when cash is received. This timing difference typically results in book income being lower than taxable income in the year of receipt (BI < TI). Since taxes are paid on deferred revenue before it is recognized for book purposes, this creates a DTA. Over time, as revenue is gradually recognized for book purposes, the DTA reverses because the tax basis of the income (which was taxed upfront) becomes lower than the book basis. In rare cases, DTLs may arise if tax laws allow revenue deferral closer to book recognition or grant certain tax allowances. For example, if a company receives a two-year subscription payment upfront, tax law may require the full amount to be recognized as income in Year 1, while book recognition occurs ratably over two years. Overall, deferred revenues initially generate DTAs, with the DTL reversal occurring over time as the revenue is earned and reported in the financial statements. The DTA(L) regression does not provide insight, but the BTD regressions do (Table 6: DEFREVENUE-BTDcoeff = −0.546 ***, Table 7: DEFREVENUE- LNBTDcoeff = 30.416 *** and DEFREVENUE-LLNBTDcoeff = 33.69 ***).
Capital expenditures generate BTDs due to differing depreciation methods between GAAP and tax rules. GAAP typically uses straight-line depreciation, while tax regulations, like MACRS, allow accelerated depreciation, leading to higher tax deductions early in an asset’s life. This reduces taxable income compared to book income, creating a DTL (DTL-CAPX coeff = 0.56 ***). The effect varies by asset type, tax rules, and firm policies. The faster tax basis reduction widens the book–tax gap, driving large positive BTDs (LPBTD-CAPXcoeff = 9.541 ***). Over time, as depreciation schedules converge, the DTL decreases, shifting to large negative BTDs (Table 7: LNBTD-CAPXcoeff = 13.694 ***; LLNBTD-CAPXcoeff = 8.627 ***).
Under GAAP, R&D costs are expensed in general, but post-2022 TCJA requires capitalization and amortization (5 years domestic, 15 years foreign). If capitalized for book but expensed for tax, taxable income drops early, creating a DTL (LPBTD-RNDcoeff = 10.606 ***), and reversing as book amortization aligns. If expensed for book but capitalized for tax, taxable income rises initially, forming a DTA (LNBTDcoeff = 21.022 ***, LLNBTD-CAPXcoeff = 12.04 ***), reversing as tax amortization catches up, switching BTDs from LPBTD to LNBTD over time.
5.2. Other Deferred Tax Components
Unrecognized tax positions impact BTDs when deferred tax benefits, like accelerated depreciation, are uncertain. Under ASC 740, doubtful tax positions lead companies to assess likelihood and possibly record a UTB liability, adjusting DTAs or DTLs. For example, a contested accelerated depreciation claim creates a DTL, but an uncertain portion may be offset by a UTB, refining deferred tax accounts. UTBs add variability, with no consistent link in some analyses, but correlate positively with large negative BTDs (25.452 **), amplifying LNBTDs by delaying taxable income. This highlights UTPs’ role in temporary BTDs and deferred tax reporting.
Deferred Capital gains create positive BTDs when gains are recognized under GAAP at the time of sale but deferred for tax purposes through like-kind exchanges or reinvestment, resulting in higher book income than taxable income and generating DTLs. These DTLs account for future tax obligations, with outcomes influenced by potential tax rate changes or indefinite deferral. In contrast, capital loss carryforwards produce negative BTDs (BI < TI) as GAAP allows immediate recognition of losses to reduce book income, while tax rules limit deductions to offsetting future capital gains. This mismatch creates DTAs for expected future tax relief.
Valuation allowance reduces DTAs when future taxable income is unlikely to realize them; this is common in industries with cyclical revenues or volatile earnings (e.g., due to losses or expiring tax carryforwards). It lowers net DTAs and book income via an expense, without affecting tax returns, ensuring accurate tax benefit reporting. Table 6 shows that VAs may increase BTDs (0.047 **), with a strong negative correlation to DTAs (−1.41 ***) and DTLs (−0.12 ***), suggesting reversals. Table 7 indicates that VAs align with small BTDs (SNBTDcoeff = 3.28 ***, SPBTDcoeff = 2.89 ***), not large ones, as they adjust book income modestly without impacting taxable income, creating small BI < TI or BI > TI gaps.
Prepaid expenses (e.g., rent, insurance, interest, service contracts) create BTDs due to differing GAAP and tax rules. GAAP capitalizes these costs as assets, expensing them over their benefit period, while tax rules (e.g., IRC § 461’s 12-month rule) often allow immediate deductions for benefits under 12 months, reducing taxable income faster than book income (BI > TI). For example, a $12,000 prepaid insurance policy is fully deducted in Year 1 for tax but expensed monthly for book, creating a DTL and positive BTDs (BTDcoeff = 0.617 ***, DTLcoeff = 1.16 ***). The DTL reverses book expenses are recognized, shifting BTDs to negative. Long-term service contracts may require tax amortization, reinforcing DTLs (DTLcoeff = 2.59 **). Table 6 and Table 7 show that rent and insurance do not drive large BTDs, but other prepaid expenses correlate with large positive BTDs (52.23 **), highlighting their role in temporary BTDs and tax planning.
Environmental obligations, such as cleanup, asset retirement, or compliance costs, create temporary BTDs due to timing differences between GAAP and tax treatment. GAAP requires recognizing these expenses when they are probable and estimable, reducing book income early. However, tax deductions are deferred until payment, resulting in a DTA (BTDcoeff = −0.43 *). If costs are capitalized for tax but expensed under GAAP, a DTL arises from initially higher taxable income. These BTDs reverse over time as actual payments bring tax and book treatments into alignment.
Capitalized costs, recorded as assets and expensed over time, include R&D, capitalized interest, intangibles, leasehold improvements, software development, or construction costs, added to an asset’s cost basis and depreciated or amortized over its useful life. Table 7 shows that capitalization creates large NBTDs (55.42 ***). These costs are spread out in financial statements via depreciation or amortization. For tax purposes, companies may expense them immediately or use accelerated depreciation, realizing tax benefits earlier, while book expenses are recognized gradually in later periods.
Accrued liabilities, like unpaid wages, rent, or utilities, create temporary BTDs due to timing differences: GAAP records expenses when incurred, while tax law often waits for payment, leading to higher taxable income (BI < TI), significant LNBTDs (3.387 ***), and DTAs (0.002 ***). These reverse upon payment. In contrast, immediate or accelerated tax deductions (e.g., for compensation or prepaid items) reduce taxable income early, generating DTLs (0.01 ***) and positive BTDs (0.005 ***) due to GAAP’s delayed expense recognition.
Other DTAs are addressed as follows: in business combinations, contingent liabilities (e.g., legal or warranty obligations) are recognized under GAAP acquisition accounting, reducing book income (BI < TI) without immediate tax deductions, as IRS rules delay deductibility until settlement. Similarly, unrealized investment losses (e.g., mark-to-market adjustments) lower book income under GAAP but are not tax-deductible until realized (e.g., upon sale). These deferrals create large negative BTDs initially (LNBTD: 19.87 ***), reflecting future tax benefits. As losses are realized, tax deductions reduce taxable income (BI > TI), potentially shifting to positive BTDs (LLPBTDcoeff = 9.03 *), demonstrating their dynamic impact on tax planning and financial reporting.
Net operating losses (NOLs) occur when deductible expenses exceed revenues, leading to negative taxable income and temporary BTDs. Under GAAP, losses reduce book income immediately, but tax treatment varies due to differences in expense recognition (e.g., accelerated vs. straight-line depreciation). NOL carryforwards create deferred tax assets (DTAcoeff = 1.12 ***) as they represent expected future tax savings, dependent on future profitability and statutory limitations. As NOLs are utilized or expire, the temporary BTDs reverse, increasing BTD values (coeff = 0.005 ***). If recovery is uncertain, a valuation allowance reduces the DTA, lowering book income without immediate tax impact.
Inventory valuation and write-downs create BTDs. GAAP (ASC 330) recognizes write-downs (e.g., for obsolescence) immediately, increasing COGS or losses, reducing book income. IRC § 471 defers tax deductions until inventory sale, causing mismatches. High inventory levels minimize write-downs, reducing BTDs and yielding negative coefficients (LNBTD: −71.43 ***, LPBTD: −19.2 **). LIFO use in inflation increases COGS, lowering taxable income more than book income (often FIFO), creating negative BTDs. Higher inventory narrows the book–tax gap, reducing significant BTDs. Deferred tax liabilities arise when tax deductions precede book recognition (DTLcoeff = 1.58 ***), reversing upon sale. Write-downs cut book income, with deferred tax deductions creating BTDs and DTAs. Negative coefficients suggest that inventory timing differences (write-downs, LIFO) have limited impact on large BTDs, aligning with tax timing in extreme cases.
Valuation adjustments modify asset or liability carrying values (e.g., goodwill impairments, fair value changes in securities, derivatives, inventory, and warranties) to reflect economic realities under GAAP, reducing book income when recognized. Tax rules often defer these adjustments until realization (e.g., sale), creating temporary BTDs when book and tax timing diverge. For instance, an inventory write-down to net realizable value lowers book income but not taxable income until sold, generating a DTA due to the higher tax basis. Valuation allowances may adjust DTAs if future tax benefits are uncertain, though they do not directly drive BTDs, only the net tax position.
Contingencies, such as lawsuits, warranties, and environmental liabilities, create negative but temporary book-tax gaps following recognition rules under GAAP (ASC 450) and tax law (IRC §461). GAAP requires recognizing a contingent liability when a an estimated loss is probable, reducing book income upfront. Tax rules, however, allow deductions only when the liability is paid and becomes an actual cash expense (BI < TI = NBTD). This expedites tax payments compared to GAAP and records deferred assets on the balance sheet.
Other receivables, like notes or lease receivables, generate DTAs (DTAcoeff = 0.72 **) due to timing differences in recognition (book accrues upfront, tax upon cash receipt), valuation (allowances deductible later), or interest (accrued for book, taxed on receipt). This reduces book income before taxable income (BI < TI), creating large negative BTDs (LNBTDcoeff = 31.545 ***), reflecting initial gaps from uncollectible allowances. These differences reverse as payments or losses are realized, with the accrual reversal captured in the BTDTEMP coefficient (BTDcoeff = 0.72 ***), such as interest on notes accrued for book but taxed upon receipt for cash-basis taxpayers.
Warranties commit a company to repairing or replacing defective products, and are common in automotive, electronics, and machinery industries. Under GAAP, estimated warranty costs are accrued at sale, reducing book income immediately. For tax purposes, deductions occur only when costs are incurred, delaying deductions and keeping taxable income higher initially. This creates negative temporary BTDs and DTAs (LNBTDcoeff = 22.378 *), which reverse as warranty costs are paid, yielding future tax benefits (DTLcoeff = 2.05 ***).
Allowance for doubtful accounts is a book allowance for doubtful receivables, reflecting estimated uncollectible amounts, which reduces book income under GAAP (ASC 310) without immediate tax deductions, as IRC § 166 allows deductions only when receivables are written off. This creates temporary BTD and DTA for future tax deductions. For example, adjusting receivables to fair value lowers book income, while tax recognition awaits realization, increasing BTDs. Write-offs reduce taxable income but not book income (already adjusted), driving LNBTDs. Empirical results show that ADA strongly correlates with LPBTDs (LPBTDcoeff = 92.08 ***, LLPBTDcoeff = 162.97 ***) due to GAAP’s early income reduction, but negatively with extreme LNBTDs (−118.1 ***), suggesting diminished impact from write-off timing or offsets.
Goodwill, arising when acquisition price exceeds net asset fair value, impacts tax accounting in mergers. Impairments of goodwill, fixed assets, and inventory create BTDs due to differing GAAP and tax treatments. Under GAAP (ASC 350, 360), goodwill is tested annually for impairment, and assets are assessed when recoverable value drops, reducing book income. Tax rules (IRC § 197, 165) often delay or disallow deductions until disposal (e.g., goodwill 15-year amortization). This mismatch drives large negative BTDs (LNBTD: 18.3 ***, extreme LNBTD: 24.413 ***) when goodwill write-downs lower GAAP income without tax relief. Temporary BTDs create DTAs (ASC 740) as book losses await tax recognition, while DTLs may arise or decrease (−0.21 *, ΔDTL: −0.644 **) if previously amortized, reducing BTDs (−0.340 ***). Goodwill impairment significantly drives LNBTDs due to non-deductible losses.
Amortization is also examined in terms of how the tax treatment of goodwill amortization influences mergers and acquisitions (M&A), tax planning, and financial reporting, particularly its role in driving LNBTDs. Goodwill amortization for tax purposes, but not for book under U.S. GAAP, reduces taxable income earlier than book income, creating a DTL due to the upfront tax deduction. This DTL reverses over time as tax amortization continues, while book goodwill remains static unless impaired, reflecting a BTD. Conversely, permanent BTDs arise when goodwill is non-deductible for tax purposes, with no deferred tax impact.
Currency swaps and derivatives used for hedging create BTDs due to differing GAAP and tax treatments. GAAP requires mark-to-market accounting, recording unrealized gains or losses in the income statement or OCI, while tax rules typically defer recognition until realization. This mismatch results in DTAs for unrealized losses (BI < TI) and DTLs for unrealized gains (book > tax), which reverse upon realization. In some cases, permanent BTDs arise if derivative-related income or expenses are tax-exempt. Companies strategically manage these timing differences to optimize deferred tax positions and tax planning.
For the remaining deferred tax items, I do not make any specific predictions; however, I will discuss and report the table findings.
GILTI affects BTDs and deferred taxes differently, as it is taxed immediately and does not create a DTL in the way that typical temporary differences do. Instead, it interacts with foreign tax credits (FTCs), which can only offset up to 80% of GILTI tax. High foreign taxes may eliminate U.S. GILTI tax, lowering ETR impact, while low foreign taxes increase it. Unused FTCs may generate DTAs, but since they cannot be carried forward, they affect tax liabilities without the usual deferred treatment.
Discounts for sales generate positive BTDs because GAAP records them immediately as contra-revenue, lowering book income, while tax recognizes revenue fully upfront and deducts discounts later, creating deferred tax liabilities (DTLs). Purchase discounts create negative temporary BTDs since GAAP reduces costs over time, whereas tax rules allow immediate reductions, resulting in deferred tax assets (DTAs). Bond discounts similarly produce DTAs due to differences in GAAP and tax timing.
Miscellaneous tax items, such as legal fees and litigation settlements, create negative temporary BTDs and DTAs because GAAP expenses them before they are deductible for tax. In contrast, prepaid expenses and deferred revenue lead to positive BTDs and DTLs since tax recognizes them before GAAP does. Permanent BTDs arise from non-deductible items like fines, penalties, key-man insurance, and some meals and entertainment, with no deferred tax impact.
Rebates create temporary BTDs due to timing differences between GAAP and tax rules. Customer rebates create lower revenue under GAAP but are only tax-deductible when paid, causing positive BTDs and DTLs that reverse upon payment. Vendor rebates reduce COGS under GAAP but may not be tax-deductible until received, creating negative BTDs and DTAs that reverse once the tax deduction occurs.
Investments in subsidiaries under the equity method create temporary BTDs because GAAP records the parent’s share of earnings as income, while tax rules only tax dividends when received. This leads to positive BTDs (book income > taxable income) and DTLs that reverse with dividends. Subsidiary losses create negative BTDs and DTAs, reversing when losses are realized. For foreign subsidiaries, these BTDs may become permanent depending on tax treatment.
Issuance costs for debt may generate DTLs and positive BTDs (BI > TI) when tax deductions under IRC §162/263 occur faster than GAAP amortization (ASC 470/835). However, empirical evidence shows minimal impact: coefficients for LNBTDs (−80.349) and LPBTDs (15.531) are insignificant, and the mean value (0.002) suggests limited deferred tax effects. This is likely due to alignment between GAAP and tax amortization schedules for debt, reducing temporary differences. Equity issuance costs, meanwhile, result in permanent differences. Overall, issuance costs appear to have negligible influence on large BTDs.
Under ASC 740, capital loss carryforwards generate DTAs in the loss period, as GAAP recognizes the future tax benefit upfront, increasing book income. In contrast, IRC §1212 defers tax benefits until capital gains are available, leaving taxable income (TI) unchanged in the current period. This mismatch creates negative BTDs (BI < TI). The significant coefficients for LNBTD (4.310 ***) and LLNBTD (5.284 **) in Table 7 confirm this effect, highlighting the timing misalignment between GAAP recognition and tax realization.
Under GAAP (ASC 323, 321, 810), partnership investments use the equity method (20–50% ownership), recognizing the investor’s share of partnership net income/loss, or the cost method (<20% ownership), recording at cost with income recognized when received. For tax purposes (IRC § 701–705), partnerships are pass-through entities; partners report their share of income/losses on individual tax returns, regardless of distributions. Table 7 and Table 8 show no significant BTDs, but Table 8 indicates a negative relation between DTL and DTA.
Deferred Foreign Earnings—Under GAAP (ASC 740) are accrued gradually with tax effects based on repatriation intent. Pre-2017 TCJA, a DTL was recorded for probable repatriation unless earnings were permanently reinvested. Post-TCJA, IRC § 965’s transition tax settled prior deferred earnings, and no DTL is needed for indefinitely reinvested earnings; tax effects are recognized when earned. For tax purposes, post-TCJA earnings face U.S. tax via GILTI (IRC § 951A) or Subpart F (IRC § 951) upon repatriation or inclusion. Foreign tax credits (FTCs) may offset U.S. tax, deferred until repatriation. DTAs arise if FTCs exceed U.S. tax liability; DTLs reduce book income without affecting taxable income until repatriation, creating BI < TI. DTLs reverse upon tax payment, and DTAs reverse when FTCs reduce taxable income. Table results show no significant LLPBTD (0.572) and negative LPBTD (−12.834 ***), suggesting limited positive BTD reversal due to indefinite reinvestment.
Advance Payments—Under GAAP (ASC 606), revenue is deferred and recognized as goods or services are delivered, lowering book income initially, while IRS rules (IRC §451) typically tax advance payments immediately unless deferred for one year (e.g., short-term services), resulting in higher taxable income upfront and generating positive BTDs (book income < taxable income) and DTLs as taxes are paid early, reversing as book revenue aligns with prior tax recognition over time.
5.3. Large Positive BTDs
Regression findings from Table 7 reveal strong LPBTD associations for ADA (92.1 ***), R&D (10.6 ***), CapEx (9.54 ***), pensions (13.48 ***), subsidiary investments (11.35 ***), prepaid items (52.23 **), DTLs (21.85 **), and NOLs (5.68 **). For R&D, CapEx, and pensions, LPBTDs reflect reversals of earlier LNBTDs.
ADA (allowance for doubtful accounts) shows a one-sided impact, significantly linked to LPBTD (92.08 ***) and LLPBTD (162.97 ***), but not to LNBTDs (LLNBTD = −18.11 **). This suggests that firms use ADA for earnings management (understating allowances to boost book income) and tax planning (accelerating write-offs to reduce taxable income), especially in receivables-heavy industries like retail, fashion, and construction. Unlike CapEx or R&D, ADA reversals depend on discretionary management actions or unexpected bad debt losses.
CapEx initially creates LPBTDs due to accelerated tax depreciation (MACRS) exceeding GAAP’s straight-line method (LPBTD = 9.54 ***), then shifts to LNBTDs as tax depreciation slows (LNBTD = 13.694 ***). This reversal pattern is confirmed by the DTL-CAPX coefficient (0.56 ***). Asset-heavy industries (e.g., Oil, Construction, Household, Mining, Beverage) show consistent transitions from LNBTDs to LPBTDs as depreciation schedules align over time (e.g., OIL: LPBTD = 0.379 ***; MINE = 2.28 ***; HOUSEHOLD = 1.004 ***).
Pensions initially generate LNBTDs (LNBTDcoeff = 21.373 ***) as GAAP (ASC 715) accrues expenses before tax deductions (IRC § 404, 430), lowering BI early (BI < TI = NBTD). In later years, contributions surpassing GAAP expenses (e.g., during full funding) cause tax deductions to exceed book expenses, lowering TI relative to BI (BI > TI = PBTD), thus creating LPBTDs (PENSION-LPBTDcoeff = 13.477 ***). Industries with significant pension obligations, like Airlines (PENSIONcoeff = 2.02 ***), also exhibit association with LPBTDs (0.618 ***).
Subsidiary investment (11.354 ***, t = 4.99) creates LPBTDs, as GAAP equity method recognition of the parent’s income share increases BI, while tax rules defer recognition until dividends are received (BI > TI). This persists in low-dividend periods, notably in industries like chemicals (LNBTD = 1.03 ***) with global subsidiaries.
Other prepaid expenses6 (52.23 **, t = 1.97) initially generate temporary BTDs (DTLcoeff = 2.59 **), but the LPBTD indicates a reversal phase. Early tax deductions (e.g., 12-month rule) lower TI, while GAAP amortization of expenses (e.g., prepaid insurance) increases Book income (BI > TI = PBTD). Findings related to other prepaid expenses highlight this shift from positive to negative BTDs, with LPBTDs capturing the reversal. The reversal from large positive to negative BTDs is evident in industries like Food products (LPBTD = 0.258 ***/LNBTD = 0.887 ***) and Oil & Gas (LPBTD = 0.258 ***/LNBTD = 0.887 ***) with long-term service contracts.
In-process R&D (IPRAND) is a subset of R&D in which LNBTDs may reverse to LPBTDs as book amortization exceeds tax deductions, mirroring RND’s pattern (10.606 ***). Variables like ADA, RND, CAPX, PENSION, PREPAIDO, and DTLO drive LPBTDs through reversal of temporary BTDs.
6. Industry Level Analysis
This study shows that LNBTDs and LPBTDs vary significantly across industries, suggesting that they are shaped more by sector-specific operations and investment patterns than by firm-level discretion. While prior work (e.g., Hanlon & Heitzman, 2010) calls for disaggregating BTDs, industry effects remain understudied, with aggregate analyses (e.g., Lev & Nissim, 2004) often masking these nuances. In consumer sectors (e.g., FOOD, RESTAURANT, RETAIL, BEVERAGE), BTDs stem from inventory valuation (FOOD-LPBTD = 0.258 ***, LNBTD = 0.887 ***), deferred revenue (RESTAURANT-LNBTD = 0.599 ***), and promotions (BEVERAGE-LPBTD = 0.973 ***), driven by customer incentives rather than tax avoidance. These components yield DTAs and DTLs consistent with economic activity (Graham et al., 2012).
In contrast, asset-intensive sectors (e.g., OIL, MINE, TECH, AIRLINE, AUTOS) experience large BTDs through accelerated tax depreciation (e.g., OIL LPBTD = 0.379 ***, MINE = 2.285 ***) and AROs, with later reversals to LNBTDs (OIL LLNBTD = 0.892 ***). Right-of-use assets further shape these trends (e.g., AIRLINE LPBTD = 0.618 *). Mixed sectors like DISTRIBUTION and CASINO show blended effects (LNBTD = −0.441 ***, −1.027 ***), with DTAs from receivables and deferred compensation. Overall, Table 6, Table 7 and Table 9 confirm that industry context—not just discretionary behavior—explain BTD variation.
6.1. High Tech Industries
While prior research has examined BTDs broadly, the industry-specific drivers of large negative BTDs (LNBTDs) remain underexplored. I argue that LNBTDs are especially pronounced in high-tech, R&D-intensive, and capital-intensive sectors due to unique deferred tax components tied to their economic and regulatory environments. In high-tech fields like pharmaceuticals and software, R&D capitalization and tax credit carryforwards (under IRC § 174 and § 41) create DTAs, as GAAP expenses are amortized for tax (e.g., RND-LNBTD = 21.022 ***). Software firms with subscription models also show large LNBTDs from deferred revenue taxed upfront but recognized gradually (REVENUEDEF-LNBTD = 30.416 ***). Capital-intensive industries like energy as well as oil and gas generate LNBTDs via accelerated depreciation (IRC § 168) and asset retirement obligations (CAPX = 13.694 ***; ARO = 35.06 ***; oil and gas = 14.52 ***). Goodwill impairments (non-deductible under IRC § 197) also contribute, especially in telecom (18.3 ***).
6.2. R&D-Intensity
Research-intensive industries, such as pharmaceuticals, medical, software, electronics, biotechnology, generate significant deferred tax assets (DTAs) due to high R&D expenditures, long development cycles, and tax planning, creating large negatives (LLNBTDs). Pharmaceuticals show strong LLNBTDs (coeff = 0.644 ***) from capitalized R&D and tax credits, driven by lengthy trials. The medical sector has notable LLNBTDs (coeff = 0.317 *) from device development and stock compensation. Software and computers exhibit robust LLNBTDs (coeff = 0.659 ***) due to capitalized development, R&D, and compensation. Electronics sector records LLNBTDs (coeff = 0.310 ***) from R&D, amortization, and credits.
6.3. Capital Intensity
Capital-intensive industries like oil and gas, mining, automotive, airlines, transport, heavy technology, and construction rely on fixed assets and infrastructure, generating significant DTLs and LPBTDs from accelerated depreciation and ROU assets, often reversing into LNBTDs. Oil and gas shows strong LPBTDs (0.379 ***) due to accelerated depreciation, shifting to LNBTDs (0.327 ***, extreme: 0.892 ***) as asset retirement obligations (AROs) create DTAs. Mining has elevated LPBTDs (2.285 ***) from depreciation and capital gains, transitioning to LLNBTDs (0.484 *) via AROs. Automotive exhibits negative LPBTDs (−0.459 **) from ROU and capital expenditures, with modest LNBTDs (0.128, n.s.) and small negative BTDs (0.431 ***). Airlines (LPBTD: 0.618 *), transport (LPBTD: −0.546 **, LNBTD: 0.322 *), heavy technology, and construction show varied BTDs. These reflect how depreciation, AROs, and ROU assets drive LPBTDs and DTLs, often shifting from LNBTDs as tax deductions outpace book expense (BI >> TI).
Consumer goods and retail sectors generate both DTLs and DTAs due to differences in inventory accounting, revenue recognition, and promotions. In FOOD, strong LPBTD (0.258 ***) and LNBTD (0.887 ***) reflect DTLs from inventory methods (FIFO vs. LIFO) and DTAs from deferred revenue like loyalty programs. RESTAURANT’s LNBTD (0.599 ***) shows DTAs from gift cards and prepaid rent, with some DTLs from rebates. RETAIL and FASHION show DTAs from allowances for doubtful accounts and deferred revenue, while FASHION also has DTLs from equity method investments. BEVERAGE (LPBTD 0.973 ***) and HOUSEHOLD (LPBTD 1.004 ***) show DTLs tied to rebates, subscriptions, and prepaid ads, with inventory DTAs driving variation. In capital-intensive industries, deferred tax positions largely stem from accelerated depreciation, AROs, and leasing. OIL and MINE show high LPBTDs (0.379 *** and 2.285 ***) due to depreciation, with LNBTDs emerging as tax benefits outpace book income. These sectors also show DTAs from AROs. Leasing impacts are seen in AUTOS (LPBTD −0.459 **) and AIRLINE (LPBTD 0.618 *), with negative BTDs where tax deductions exceed GAAP expense timing, highlighting timing mismatches.
Industries like DISTRIBUTION, CASINO, BEVERAGE, and HOTEL generate DTL and DTA through revenue recognition, compensation, and tax adjustments. CASINO’s LNBTD (−1.027 ***) reflects DTA from deferred revenue (loyalty programs) and deferred compensation, with minor DTL from stock compensation. BEVERAGE’s LPBTD (0.973 ***) arises from DTL tied to subscriptions and tax adjustments. DISTRIBUTION’s LNBTD (−0.441 ***) stems from DTA linked to receivables and tax adjustments, with BTDs reinforced by long-term contracts and valuation allowances, supporting economic determinants over discretionary factors across the sample.
6.4. Permanent BTDs
While this study primarily focuses on temporary BTDs, several deferred tax items also contribute to permanent BTDs due to fundamental differences between GAAP and tax rules. Warranty provisions (1.382 ***) often create permanent BTDs when financial reporting allows deductions for extended or promotional warranties that are disallowed under tax law, impacting sectors like automotive and electronics. Capitalized costs (1.665 ***) lead to permanent differences when items capitalized under GAAP (e.g., environmental or overhead costs) are non-deductible for tax purposes. Issuance costs (3.656 **) tied to debt or equity are amortized under GAAP but often not deductible under IRC, elevating taxable income permanently.
Goodwill impairments (0.245 ***) also produce permanent BTDs since they are recognized for book but not tax purposes, notably affecting acquisition-heavy industries. Federal and foreign tax credits (0.310 ***) lower tax liability without altering pre-tax book income, especially in multinational firms where unused credits create permanent mismatches. Deferred earnings (0.144 ***) from untaxed foreign income increase book income without generating tax liability, affecting global firms in software and distribution.
Unlike temporary BTDs, these differences do not reverse as they stem from structural disparities in deductibility and taxability between GAAP and IRC rules, causing lasting divergence between book and taxable income.
7. Conclusions
This study shows that LNBTDs arise from diverse deferred tax items like R&D, CAPX, goodwill impairments, accounts receivables, pensions, intangibles, deferred revenue, and various tax credit items, not just financial distress or earnings manipulation. Deferred revenue is a special case because it can relate to Software as a Service (SaaS) firms, a unique sector in the e-commerce IT industry.7 R&D tax credits and capitalized R&D, intensified by TCJA’s amortization shift, boost DTAs in biotech and high-tech. Goodwill impairments, non-deductible for tax, drive LNBTDs in M&A-heavy sectors like software and telecom. Capital-intensive industries (manufacturing, energy, real estate) generate LNBTDs via accelerated depreciation, while retail sees them from gift cards and rebates. LNBTDs, mostly temporary, reverse asymmetrically due to long-term items like pensions and asset retirement costs. Investment-focused firms in innovative sectors produce LNBTDs through tax deductions and deferred revenue, with managerial discretion (e.g., valuation adjustments) playing a lesser role. For multinationals, GILTI, foreign tax credits, and UTPs amplify LNBTDs, reflecting tax optimization (Graham et al., 2012).
7.1. Contribution and Implications
While ASC 740 governs deferred tax reporting, prior research has rarely analyzed specific drivers, such as deferred revenue, goodwill impairments, R&D credits, and pensions, due to limited focus on deferred tax components and limited tax data in platforms like Compustat-Capital IQ. This paper addresses that gap using hand-collected 10-K data from S&P 500 firms. Its component-level analysis uncovers how these items drive large negative BTDs (LNBTDs), revealing industry patterns tied more to economic fundamentals than tax avoidance.8
This study significantly contributes to shareholders’ and investors’ understanding of large negative BTDs by demonstrating their role as signals of long-term investment strategies rather than financial distress or earnings manipulation. The findings highlight that LNBTDs, driven by deferred revenue and R&D credits in high-tech sectors like SaaS and pharmaceuticals, reflect innovation and growth potential, with supplemental analyses showing that LNBTDs in R&D-intensive firms predict future firm value. Industry-specific patterns further enable investors to assess economic fundamentals across sectors like computers and oil, enhancing decision-making by providing clarity on the value relevance of LNBTD observations and deferred tax disclosures (Lev & Nissim, 2004). The findings inform standard-setters and regulators by helping to distinguish tax obligations from investment signals, supporting strategic tax use, and guiding potential ASC 740 improvements in transparency. To improve transparency in LNBTD-heavy industries, I also advocate for enhanced ASC 740 disclosures. My findings highlight that LNBTDs can signal strategic investments but lack clarity for investors. Detailed disclosures of deferred tax components would enable stakeholders to better assess firms’ economic fundamentals and future tax obligations, supporting calls for improved financial reporting (Hanlon & Heitzman, 2010).
However, the study’s focus on S&P 500 firms introduces survivorship and sector bias, limiting generalizability beyond large U.S. public companies. While hand-collected data increase accuracy, the process excludes smaller, international, or even private firms. Additionally, some temporary BTD sources are unexamined due to accounting complexity and evolving rules. Disclosure variability and overlaps—such as valuation allowances tied to goodwill impairments—may obscure effects. The analysis spans periods of economic disruption (e.g., the 2008 crisis, 2018-TCJA). Despite its limitations, this study offers a foundation for advancing deferred tax analysis in both academic and regulatory domains.
7.2. Final Remarks
Literature has traditionally focused on large positive BTDs and linked them to tax avoidance and earnings management. By examining LNBTDs using S&P 500 companies, this study addresses a gap in BTD research. LNBTDs, driven by non-discretionary deferred tax components like deferred revenue, R&D, intangibles, accrued costs, receivables, goodwill impairments, CapEx, and pensions, reflect economic and industry-specific factors rather than discretionary manipulation. LNBTDs can potentially highlight strategic investments, operational practices, and regulatory effects, with asymmetry in reversals distinguishing LNBTD firms from LPBTD firm-year observations. R&D-intensive sectors (e.g., pharma, tech) show LNBTDs from innovation investments, while capital-intensive industries (e.g., oil, manufacturing) exhibit them from depreciation and environmental obligations. Retail/consumer sectors generate deferred assets from inventory and rebates, and regulated industries (e.g., healthcare, airlines) feature UTPs and tax credits. LNBTDs can underscore industry-specific accounting and tax optimization, as well as promoting transparency under ASC 740. In effect, regulators, including tax authorities, benefit from understanding LNBTD and its determinants, which allows them to guide policies so that they align tax incentives with economic realities and foster informed decision-making. For managers, LNBTDs, driven by deferred revenue, IPR&D, intangibles and asset investments, highlight how industry and business practices drive DTA/DTLs, enabling informed tax planning and investment decisions. Finally, for investors, LNBTDs can signal long-term investments, stock growth, and innovation, improving analyst valuation assessments.
Supplementary Materials
The following supporting information can be downloaded at: https://www.mdpi.com/article/10.3390/jrfm18060291/s1, Table S1: Discretionary vs. Non-Discretionary Tax Accounting Classification. Table S2: Other Prepaid Expense Items. Table S3: U.S. GAAP vs. IRC Tax Rules.
Funding
This research has received no external funding.
Institutional Review Board Statement
Not applicable.
Informed Consent Statement
Not applicable.
Data Availability Statement
The data presented in this study are available upon request from the author due to privacy and intellectual property ownership rights.
Conflicts of Interest
The author declares no conflict of interest.
Appendix A
Table A1.
Definition of Variables and Deferred Tax items.
| Panel A: Definition Table for Main variables | ||
| Abbreviation | Variable definition | Variable Description |
| BTDTEMP | Temporary Book Tax Difference | The sum of federal and foreign deferred taxes (Compustat TXDFED and TXDFO), grossed up by the statutory tax rate (35% in my sample period before TCJA, and 21% rate post-2018), and scaled by average assets. If either federal or foreign deferred taxes are missing, total deferred taxes (Compustat TXDI) is used instead. |
| BTDTOTAL | Total Book Tax Difference | Pre-tax net income (Compustat PTBI) minus Taxable Income (Compustat TI) scaled y Total assets (Compustat AT) |
| BTDPERM | Permanent Book Tax Difference | Total BTD minus Temporary BTD |
| DTA | Deferred Tax Asset | A financial item on a company’s balance sheet that represents a reduction in future tax liability. It arises when a company has overpaid taxes or paid taxes in advance, or when it has incurred expenses or losses that can be used to reduce taxable income in future periods. Essentially, it is a tax benefit that can be used to lower its tax in the future |
| DTL | Deferred Tax Liability | A financial item on a company’s balance sheet that represents an increase in future tax liability. It arises when a company has underpaid taxes or will owe additional taxes in the future due to temporary differences between income reported in financial statements and taxable income reported for tax purposes. It is a tax obligation that will need to be paid in the future |
| LNBTD | Large Negative BTDs | A dummy variable, equal to one for firm-year observations in the lowest BTD quintile, and zero otherwise |
| MNBTD | Middle Negative BTDs | A dummy variable, equal to one for firm-year observations in the second lowest BTD quintile, and zero otherwise |
| SNBTD | Small Negative BTDs | A dummy variable, equal to one for firm-year observations with a negative BTD value that fall within the third BTD quintile, and zero otherwise |
| LPBTD | Large Positive BTDs | A dummy variable, which is equal to one for firm-year observations in the highest BTD quintile, and zero otherwise |
| MPBTD | Middle Positive BTDs | A dummy variable, equal to one for firm-year observations in the second highest BTD quintile, and zero otherwise |
| SPBTD | Small Positive BTDs | A dummy variable, which is equal to one for firm-year observations with a positive BTD value that fall within the third BTD quintile, and zero otherwise |
| LLNBTD | Extremely Large Negative BTDs | A dummy variable, equal to one for the bottom 250 observations based on the BTD ranking, and zero otherwise |
| LLPBTD | Extremely Large Positive BTDs | A dummy variable, equal to one for the top 250 observations based on the BTD value ranking, and zero otherwise |
| NBTD | Negative BTD values | A dummy variable, which is equal to one for firm-years that have a negative BTD value, and zero otherwise |
| PBTD | Positive BTD values | A dummy variable, which is equal to one for firm-years have a positive BTD value, and zero otherwise |
| SGA | Selling, General & Administrative expenses | This item represents all costs incurred during the year that relate to costs associated with admin and other general activities. This item includes marketing, supplies, salaries and office depreciation expenses (Compustat item xsga). |
| CAPX | Capital Expenditures | This item represents the funds used for additions to property, plant, and equipment, excluding amounts arising from acquisitions scaled by average assets (Compustat capx). |
| RND | Research & Development Expense | This item represents all costs incurred during the year that relate to the development of new products or services. This item includes software expenses and amortization of software costs (Compustat item xrd) |
| Panel B: Definition Table for Deferred Tax component items | ||
| Variable | Accounting Item | Definition |
| ARO | Asset Retirement Obligations | A legal or regulatory requirement for a company to dismantle, remove, or restore a long-lived asset at the end of its useful life. This obligation often arises in industries such as oil and gas, mining, and utilities, where environmental regulations or contractual agreements mandate the cleanup or restoration of sites after operations cease. |
| AR | Accounts Receivable | Amount of money owed, sales on accounts, to a company by its customers for goods or services delivered but not yet paid for. This item also reports some inventory sales items. |
| LEASEO | Operating Lease | Agreements where the lessee obtains the right to use an asset for a specific period without ownership transfer. Payments are treated as operating expenses, and the asset and liability are recorded on the balance sheet under accounting standards (ASC 842) |
| LEASEF | Financing Lease | Financing lease is a lease agreement where the lessee effectively assumes ownership of the leased asset for accounting purposes. The lessee recognizes the asset as a long-term asset and records a corresponding lease liability on the balance sheet, with interest and depreciation expenses reported in the income statement. |
| ISSUE | Issuance cost | Issuance costs are expenses incurred by a company to raise capital through the issuance of debt or equity securities. These costs include legal fees, underwriting fees, registration fees, and printing costs, and are typically amortized over the term of the securities for debt or recorded as a reduction in paid-in capital for equity. |
| OBLIGATION | Environmental Obligations | Legal or constructive responsibilities that a company has to prevent, mitigate, or remediate environmental damage. These obligations often arise from laws, regulations, or contracts and may include cleanup costs, pollution control measures, or restoration of contaminated sites. Also settlement charges, etc., are reported under OBLIGATION. |
| PARTNERINV | Investments in Partnerships | Represents a stakeholder’s ownership interest in a partnership entity. These investments are typically accounted for using the equity method, where the investor recognizes their share of the partnership’s income, losses, and distributions on their financial statements. |
| UTP | Uncertain Tax Positions | Tax treatments claimed by a taxpayer that may be challenged by tax authorities. These positions require a company to assess and disclose the potential financial impact if the treatment is disallowed, often involving the recognition of a liability for tax payments. |
| PAYROLL | Employee Obligation | liabilities incurred by a company for expenses related to its workforce, such as salaries, wages, bonuses, benefits, paid leave, and payroll. These obligations are typically recognized as current liabilities on the balance sheet. |
| WARRANTY | Warranty Reserves | Liabilities recorded by a company to estimate the costs of repairing or replacing products under warranty. This reserve ensures that the company matches the potential warranty costs with the revenues generated from the sale of the product, adhering to the matching principle in accounting. |
| REBATE | Rebates | Partial refunds or discounts offered by sellers to buyers after a purchase, typically as an incentive to encourage sales or reward customer loyalty. They are often conditional upon meeting specific criteria, such as volume purchases or timely payments. |
| CAPX | Capital Expenditure | The allocation of the cost of capital expenditures (CAPX) over the useful life of the associated tangible assets. This systematic expense reflects the wear and tear or obsolescence of the asset and is recorded periodically on the income statement. |
| RND | Capitalized R&D | Capitalized R&D refers to research and development costs that are recorded as an asset on the balance sheet rather than expensed immediately. These costs are amortized over time, typically when they are associated with the development of a product or technology that meets criteria for future economic benefit, as allowed under certain accounting standards. |
| COSTCAP | Capitalized cost | Expenses incurred to acquire or improve a long-term asset that are added to the asset’s value on the balance sheet rather than being expensed immediately. These costs are amortized or depreciated over the asset’s useful life. Examples include purchase price, installation fees, and major upgrades. It mostly includes capitalized software and development costs, adjustment to inventory, and capitalized intangible assets. |
| GOODWILL | Goodwill Impairments | Goodwill impairments occur when the carrying value of goodwill on a company’s balance sheet exceeds its fair value, indicating a decline in the expected future economic benefits of the acquired business. This results in a non-cash accounting charge to reduce the value of goodwill. |
| ADVANCE | Advance Payment | Advanced payment is a payment made by a buyer to a seller before the delivery of goods or services. It is recorded as a liability (unearned revenue) on the seller’s balance sheet until the obligation is fulfilled, and as a prepaid expense on the buyer’s balance sheet until the goods or services are received. |
| ACCRUEEXP | Accrued Liabilities | Obligations that a company has incurred but not yet paid by the end of an accounting period. These liabilities are recorded because the expense has been recognized under the accrual accounting method, even though the payment has not been made. |
| REVENUEDEF | Deferred Revenue | A liability represents payments received in return for goods and services not yet delivered or performed. It is recognized as revenue on the statement only when the goods or services are provided. It contains items like warranty provisions, some deferred gains and deferred rent income. |
| ADA | Allowance for Doubtful Accounts | A contra-asset account estimates the portion of a company’s accounts receivable that may not be collectible. It reflects the expected credit losses and ensures compliance with the matching principle by recognizing bad debts in the same period as the related revenue. ADA also includes provisions for product returns, allowance for cancellations, discounts, and loan and loss reserves. |
| SWAPS | Currency Swaps & Derivatives | A swap is a financial agreement between two parties to exchange cash flows or liabilities, often based on interest rates, currencies, or other financial benchmarks. The most common swaps and derivative types include interest rate swaps and currency swaps. Financial derivatives are instruments with a value derived from underlying assets, indexes, or exchange rates. Examples include options, futures, forwards, and swaps, which are used for hedging, speculation, or arbitrage. |
| CONTINGENCY | Contingency Liability | A potential obligation that may arise depends on the outcome of a future event. It is not recorded as a liability on the balance sheet unless certain recognition criteria are met, but is disclosed in the financial statements if it is reasonably possible. |
| TRANSLATION | Translation Adjustment | Gains or losses from the translation of a company’s foreign subsidiaries’ financial statements from their currency into the reporting currency are recorded in Other Comprehensive Income (OCI). These adjustments represent the impact of exchange rate fluctuations occurring during the reporting period. |
| PENSION | Pension Compensation | Pension obligations are a company’s financial commitment to provide retirement benefits to its employees under a pension plan. They represent the present value of future employee payments based on factors such as service years, salary levels, and actuarial assumptions. |
| STOCK | Stock Compensation | Equity compensation, also known as equity remuneration, is a form of employee remuneration in which a company provides employees with ownership interests, such as stocks, as part of their compensation package. It is commonly used to attract and retain talent, align employee interests with shareholders, and incentivize long-term performance. |
| RECEIVABLEO | Other Receivables | Other Receivables refer to amounts owed that do not fall under the usual categories of trade receivables. If they are expected to be collected within a year, they are typically recorded as current assets on the balance sheet. Examples include advances, interest, dividend receivables, reimbursements, and tax refunds. |
| CAPLOSS | Capital Loss Carryforward | Capital loss carryforward is a tax provision that allows individuals or businesses to apply unused capital losses from one tax year to offset capital gains or taxable income in future years. This helps reduce future tax liabilities, subject to specific limits and regulations. |
| NOLCF | Net Operating Loss Carryforward | NOL Carryforwards allows a business to apply a net operating loss incurred in one tax year to offset taxable income in future years. This provision reduces future tax liabilities and helps businesses manage the financial impact of losses, subject to limitations and regulations. |
| NOLO | Other NOL | Other NOLs can refer to special cases of losses that arise from non-core business activities, non-operating items, or legacy tax attributes. |
| CREDITCF | Tax credit Carryforwards | Refers to the ability of a taxpayer to apply unused tax credits from the current year to offset tax liabilities in future years. This provision helps maximize the benefit of credits that exceed the taxpayer’s current-year tax liability, subject to time limits and specific rules. |
| CREDITFOREIGN | Foreign Tax credit Carryforwards | Foreign tax credit carryforwards allow taxpayers to apply for unused foreign tax credits from the current year to offset foreign tax liabilities in future years. Under U.S. tax law, these credits are generally carried forward for up to 10 years. |
| CREDITFED | Federal Tax credit Carryforwards | Federal tax credit carryforwards enable taxpayers to use unused federal tax credits, such as the general business credit, in subsequent years to reduce federal tax liabilities, often subject to specific time limits and regulations. |
| CREDITRND | R&D credit Carryforward | Refers to the ability of a company to apply unused research and development tax credits to offset future tax liabilities if the credits cannot be fully utilized in the current tax year. These carryforwards are subject to specific time limits and regulations, depending on jurisdiction. |
| MISCL | Miscellaneous costs | Expenses that do not fall under a specific category in accounting or budgeting are typically minor or infrequent but necessary for operational or personal activities. They are often grouped in financial reports to simplify accounting. |
| VA | Valuation Allowance | VA is a contra-account used to reduce the value of DTAs on the balance sheet. It reflects the portion of a DTA that is unlikely to be realized due to insufficient future taxable income or other factors. |
| INVENTORY | Inventory | Inventory refers to the company’s goods and materials for sale in ordinary business or production. It is classified as a current asset on the balance sheet and typically includes raw materials, work-in-progress, and finished goods. |
| PREPAIDRENT | Prepaid Rent and Insurance | Prepaid Rent: A payment made in advance for using property or space, recorded as a current asset on the balance sheet. It is expensed over time as the rent period occurs. Prepaid Insurance: A payment made in advance for insurance coverage, recorded as a current asset. It is expensed periodically as the coverage period elapses. |
| GDWLAMO | Goodwill Amortization | Items such as goodwill recording, consolidation difference, excess of cost over equity; acquired intangible assets are accounted here. |
| DEP | Depreciation expense | The process of allocating the cost of a tangible asset over its useful life to reflect wear and tear, obsolescence, or usage. |
| AMO | Amortization expense | Amortization is the systematic allocation of an intangible asset’s cost over its useful life. This process reflects the gradual consumption or depletion of the asset’s value and ensures adherence to the accounting matching principle, which aligns expenses with the revenues they contribute to generating. |
| DEPAMO | Depreciation and Amortization | Depreciation is the systematic allocation of the cost of a tangible asset (such as machinery, buildings, or vehicles) over its useful life. It represents the gradual loss in the asset’s value due to use, wear and tear, or obsolescence. Amortization is the systematic allocation of the cost of an intangible asset (such as patents, copyrights, trademarks, or goodwill) over its estimated useful life. It reflects the gradual consumption or usage of the intangible asset’s value over time. |
| GILTI | Global Intangible Low-Taxed Income | GILTI is a provision introduced by the U.S. Tax Cuts and Jobs Act of 2017 to tax the income of U.S. shareholders from controlled foreign corporations (CFCs) that exceeds a 10% return on tangible assets. This measure aims to discourage profit shifting to low-tax jurisdictions by U.S. multinational companies. It targets U.S. shareholders owning at least 10% of a CFC. GILTI is calculated as the excess of the U.S. shareholder’s net CFC-tested income over the net deemed tangible income return, which is 10% of the CFC’s qualified business asset investment (QBAI) |
| EARNINGSDEF | Deferred Foreign Earnings | Unremitted earnings of foreign subsidiaries and accumulated profits of a company’s foreign subsidiaries have not been repatriated to the parent company. Under certain tax systems, these earnings may not be taxed in the parent company’s home country until they are distributed as dividends, reinvested, or otherwise repatriated. |
| SUBSIDIARYINV | Subsidiaries Investments | A type of subsidiary established primarily to hold and manage investments, such as securities, real estate, or other financial assets. These subsidiaries are often used for tax planning, risk management, or to consolidate and segregate investment activities from the parent company’s core operations. |
| ROU | Right of Use Assets | Represent the lessee’s right to use a leased asset over the lease term. Under accounting standards (ASC 842), ROU assets are recorded on the balance sheet at the present value of lease payments and amortized over the lease term. It includes deferral of operating and finance lease assets. |
| PREPAIDO | Other Prepaid expenses | Other payments made by a company for goods or services to be received in the future. These are recorded as assets on the balance sheet and expensed on the income statement as the benefits are realized over time. |
| VALUATION | Valuation Adjustments | Refer to changes made to the recorded value of an asset, liability, or equity to reflect its fair market value or more accurate economic reality. These adjustments are essential for ensuring financial statements present a fair view of financial position. This contains equity and debt-based fair value adjustment, adjustments to loans, investment securities and trading accounts. |
| CAPGAINDEF | Deferred Capital Gains | Profits from the sale of an asset that are not immediately taxed due to specific provisions or strategies, such as reinvesting proceeds into qualifying assets or deferring recognition through installment sales or like-kind exchanges. |
| PARTNERSHIP | Partnership income | The earnings or losses generated by a partnership business that are distributed among its partners based on the partnership agreement. A partnership does not pay income taxes directly; instead, income, deductions, and credits flow through to the partners, who report them on their individual tax returns. |
| ADJUST | Tax Adjustments | Refer to changes made to taxable income or tax liability to reflect correct amounts based on allowable deductions, credits, exemptions, or adjustments mandated by tax laws. These adjustments ensure that taxpayers or businesses comply with tax regulations and pay the correct amount of tax. |
| DISCOUNT | Cash and Sales discounts | A sales discount is a reduction in the amount due from a customer, offered by a seller, as an incentive for early payment. It is typically expressed as a percentage and noted in payment terms. A purchase discount is a reduction in the purchase price offered by a supplier to a buyer as an incentive for early payment. |
| IPRND | In process R&D Spending | IPR&D refers to intangible assets acquired in a business combination that represent incomplete R&D projects. These assets are recorded at fair value on the acquisition date and are subsequently accounted for as part of the acquiring company’s R&D efforts. |
| CREDITBUS | General Business credit Carryforwards | These carryforwards allow taxpayers to apply unused general business credits from a current tax year to offset tax liabilities in future years. These credits, which include various incentives like R&D and investment credits, can typically be carried forward for up to 20 years under U.S. tax law. |
| DTAO | Deferred Tax Assets (Other) | Refers to deferred tax assets that do not fit into common categories like net operating losses (NOLs) or depreciation timing differences. This can include restructuring reserves, unrealized losses, and other compensations. |
| DTLO | Deferred Tax Liability (Other) | Refers to additional or non-standard deferred tax liabilities that do not fit into common categories like depreciation or revenue recognition. It can include tax treatments, foreign DTLs, and unrealized foreign exchange gains. |
Table A2.
BTD and DTA Literature Summary.
| Article | Pub. | Focus | Approach | Findings |
|---|---|---|---|---|
| This Study | N.A. | Large BTD Determinants | Empirical Model | Determinants and components of LNBTDs. Economic, business and industry characteristics of large negative BTDs. |
| (Amir et al., 2001) | RAS | Valuation Relevance | Mathematical Model | Explores the market’s valuation of deferred tax components and highlights their relationship with future cash flows and firm value. |
| (Guenther & Sansing, 2004) | TAR | Valuation Relevance | Mathematical Model | Examines whether deferred tax balances are value-relevant to investors, particularly in industries with significant temporary differences. |
| (Scholes et al., 1992) | JAR | Change in Tax rates | Empirical Model | Examines the adjustments firms made to deferred tax accounts in response to tax rate changes. |
| (Bauman & Bauman, 2002) | RAF | Earnings management | Empirical Model | Utilizes a sample comprised of Fortune 500 firms to examine earnings management via changes in the deferred tax asset valuation allowance. |
| (Mills & Newberry, 2001) | JATA | Tax costs | Archival research | Explores specific temporary differences (e.g., depreciation) and their impact on deferred taxes and reporting. |
| (Phillips et al., 2003) | TAR | Earnings management | Empirical Model | Provides evidence that deferred tax expense is used by firms to manage reported earnings. |
| (Edwards & Shevlin, 2011) | TAR | Change in Tax rates | Theory and Empirical | Assesses how deferred tax liabilities are impacted by changes in enacted tax rates. |
| (Dhaliwal et al., 2004) | CAR | Earnings management | Empirical Model | Explores the use of tax expense and deferred taxes in earnings management to meet analyst expectations. |
| (Hanlon & Heitzman, 2010) | JAE | Informational role of Tax | Literature review | Reviews the broader role of tax accounts, including deferred taxes, in firm valuation and market behavior. |
| (Bruce et al., 1998) | Accounting Horizons | Determinants of Valuation Allowance | Empirical Model | Empirically examines the association between the recognized deferred tax asset valuation allowance and certain variables put forth as sources of evidence in SFAS No. 109 to determine how companies are applying the standard. |
| (Hamilton, 2023) | JATA | Depreciation | Empirical Model | Finds that investors value depreciation-related DTLs as economic burdens but also recognize their tax deferral benefits. |
| (Laux, 2013) | TAR | Future tax payments | Empirical Model | Examines whether deferred taxes provide incremental information about future tax payments and explores whether the relationship is affected by whether and when the deferred tax accounts reverse. |
| (Miller & Skinner, 1998) | TAR | Determinants of Valuation Allowance | Empirical Model | Explores the determinants of the valuation allowance for DTAs under SFAS No.109. |
| (Harrington et al., 2012) | JFA | Corporate debt policy | Empirical Model | Links net deferred tax assets/liabilities to debt policy, showing NDTA lowers debt issuance and leverage, while NDTL increases both, per the substitution hypothesis. NDTA(L) (37% of observations) bundles tax shield effects. |
| (Edeigba et al., 2023) | CAFR | Unintended consequences | Empirical Model | Examined the relationship between the IAS (12) and deferred income taxes associated with tax and accounting rules. The authors show that DTA decreased significantly, whereas DTLs increased significantly. |
| (Brouwer & Naarding, 2018) | Accounting in Europe | Value relevance of deferred taxes | Literature Study | Argues that deferred taxes should only be recognized for temporary differences that result in actual future tax payments or receipts. Partial allocation, rather than comprehensive allocation, is recommended to align deferred taxes with future cash flows, enhancing relevance and clarity. |
Table A3.
Industry sectors summary.
| SECTOR | SIC Code 1 | Industries | Obs. | Firm Examples | Deferred Items |
|---|---|---|---|---|---|
| MEDICAL | 11, 12 | Surgical, medical supplies, biological products, Pharmaceutical, Drugs | 162 | Abbott labs, Medtronic plc Becton Dickinson | R&D, In-Process R&D, R&D credit, Stock Compensation, Goodwill, UTPs, Deferred Revenue, GILTI |
| ENTERTAIN | 7 | Gambling and entertainment services | 99 | MGM Resorts, Caesars Entertainment, Full house resorts | Deferred Revenue, Tax Adjustments Stock Compensation, UTPs, Lease, ROU, Rebates, |
| BEVERAGE | 3, 4 | Beer and Liquor, Wine, Alcoholic drinks, Candy and Soda, Soft drinks | 36 | Coca cola, Monster beverage Constellation Brands | Inventory, Rebates, Discounts, CapEx, Depreciation, Prepaid Rent and Insurance |
| FOOD | 2 | Meat and Dairy products, Bakery, Coffee, Sugar, food preparations | 146 | Keurig Dr Pepper, Mondelez Intl. Archer-Daniels | Inventory, Rebates, Discounts, CapEx, Depreciation, Prepaid Rent and Insurance |
| ELECTRONICS | 37 | Electronic components and accessories. Computer hardware, software, Mainframe, laptops, | 475 | Intel Inc., Nvidia Corp NetApp inc. | Capitalized R&D, R&D and Foreign credits, Deferred Compensation, Goodwill, CapEx, Amortization |
| CONSTRUCT | 17, 18, 19 | General building contractors, Heavy construction, Home security safety, Wood and material supplies | 91 | Allegion plc., Fortune Brands D.R. Horton inc. | CapEx, Depreciation, ARO, Environmental Obligations, ROU, Contingency Liability |
| RETAIL | 43 | merchandise stores, grocery stores, convenience, appliance, automotive retails stores. Department stores | 448 | Kohl’s Corp, Shoe Carnival inc. Costco Wholesale | Inventory, ADA, Rebates, Deferred revenue, Discounts, Operating Lease, ROU, Prepaid costs, Receivables |
| RESTAURANT | 44 | Food franchise, Pubs and bars, Eatery, lodge, | 179 | Texas roadhouse, Wendy’s co Restaurant Brands | Prepaid expense, Deferred Revenue, Rebates, Discounts, Operating Lease, ROU, CapEx |
| OIL | 31 | Petroleum and Natural Gas, Drilling oil and gas wells, Coal, gas and oil refineries, Energy extraction | 149 | Halliburton Oil, Hess group Exxon Mobil Corp | ARO, Obligations, CapEx, GILTI, ROU, Deferred Earnings, Currency swaps, Lease, Contingency |
| PHARMA | 13 | Drugs, Medicinal chemicals, Biological products, Pharmaceutical preparations | 185 | Pfizer Inc., Amgen inc. Bristol Myers co. | Contingency, R&D, R&D and Foreign credits, Stock Compensation, Goodwill, UTPs, Deferred Revenue, NOL, currency swaps |
| CHEMICAL | 14 | Plastic material and synthetic resin/rubber, Industrial, Agriculture and organic chemicals | 88 | Albemarle Corp PPG Industries Eastman chemical | GILTI, CapEx, Environmental Obligations, Capitalized R&D, Tax credits, Deferred Foreign Earnings |
| AUTO | 24 | Automobiles and Trucks, Motor vehicles and motor vehicle equipment, vehicle parts and accessories | 64 | Aptiv LLC General Motors Paccar inc. | GILTI, Depreciation, Warranty Reserves, Financing Lease, ROU, Goodwill, Receivables, |
| FASHION | 10 | Fashion brands, Footwear, Apparel, | 61 | Ralph Lauren Lulu Lemon Capri holdings | Prepaid expense, Inventory, Deferred Revenue, Discounts, ADA, Receivables, ROU, Subsidiaries Investments |
| HOUSEHOLD | Consumer Goods, Household furniture, | 52 | Ecolab inc. Procter & Gamble Estee Lauder | Inventory, Deferred Revenue, Rebates, Discounts, CapEx, Depreciation, Prepaid Advertising | |
| DISTRIBUTION | 42 | Wholesale, supplies and distribution centers | 112 | Copart inc. Henry Schein Insight enterprises | Inventory, Other Receivables, Operating Lease, ROU, CapEx, Tax Adjustments, |
| HOTEL | 44 (7000–7049) | Hotels and Motels, Lodging, Membership hotels and lodging houses | 45 | Hilton holdings Boyd Gaming Marriott Intl. | Deferred Revenue, Operating Lease, ROU, Stock Compensation, CapEx, Prepaid Rent and Insurance |
| HEAVY | 20, 21, 22, 23 | Electrical equipment, Communications equipment, Machinery equipment, parts and accessories, Control systems | 177 | Cummins inc. Caterpillar inc. Applied materials | GILTI, CapEx, Capitalized R&D, R&D credits, Contingency, ROU, Environmental Obligations |
| AIRLINE | 41 (4500–4599) | Air transportation, Airlines, | 51 | Delta Airlines Alaska Airlines American Airlines | Financing Lease, ROU, CapEx, Pensions, Tax credits, Deferred Foreign Earnings, Currency swaps |
| MINE | 29 | Precious metals, Non-Metallic and Metal Mining, Bituminous coal | 26 | Freeport McMoran Martin Marietta materials | ARO, Environmental Obligations, CapEx, Depreciation, Tax credits, |
| COMPUTER | 35, 36 | Computer and office equipment, Computer integrated systems design, Software systems | 436 | Autodesk Yelp! Fiserv Inc. | R&D credits, Stock Compensation, Goodwill, Deferred Revenue, UTPs, Capitalized R&D, In-Process R&D |
| TRANSPORT | 41 | Water transport, Railroad, Transportation services | 101 | Uber, Expeditors intl. Expedia | CapEx, Depreciation, Financing Lease, ROU, Pensions, Tax credits, |
1 The industry classification and corresponding codes are as follows: Agriculture (1), Food Products (2), Soda and Drinks (3), Beer and Beverage (4), Smoke and Tobacco (5), Toys (6), Fun and Entertainment (7), Books and Publication (8), Household Goods (9), Clothes and Apparel (10), Healthcare (11), Medical Equipment (12), Pharmaceutical Products (13), Chemicals (14), Textiles (16), Construction Materials (17), Build Construction (18), Steelworks (19), Industrial Tools (20), Fabricated Products (21), Machinery (22), Electrical Equipment (23), Automobiles and Trucks (24), Aircraft and Parts (25), Shipbuilding and Railroad (26), Guns and Defense (27), Precious Metals (28), Industrial Metal Mining (29), Coal (30), Petroleum and Gas (31), Utilities (32), Communications (33), Personal Services (34), Business Services (35), Computers (36), Chips and Electronics (37), Measuring Equipment (38), Business Supplies (39), Shipping Containers (40), Transportation (41), Wholesale (42), Retail (43), Restaurants (44), Banking (45), Insurance (46), Real Estate (47), Investors and Trade (48), Sanitary Services (49).
| 1 | Throughout the paper, any mention of BTDs refers to temporary BTDs. Permanent BTD will be either named in full or referred to as BTDPERM. |
| 2 | S&P 500 is a Stock market index that tracks 500 large-cap publicly traded companies listed on major U.S. stock exchanges (like the NYSE or NASDAQ). |
| 3 | EDGAR (Electronic Data Gathering, Analysis, and Retrieval) provides free access to SEC filings for U.S. public companies, including 10-K, 10-Q, and proxy statements. |
| 4 | To be included in the S&P 500, a company must meet certain criteria, such as being based in the U.S, having a market capitalization of at least USD 14.6 billion (as of 2023, subject to periodic updates), having at least 50% of shares available to the public (public float), and reporting positive earnings in the most recent quarter and the past year. |
| 5 | All S&P 500 firms are required to comply with SFAS No. 109 (Statement of Financial Accounting Standards No. 109: Accounting for Income Taxes) as part of adhering to the Generally Accepted Accounting Principles (GAAP) in the United States. SFAS No. 109, issued by the (FASB, 1992) Accounting Board, which mandates how companies should account for income taxes, including deferred tax assets and liabilities. |
| 6 | Please see Table S2 in Supplementary Materials for a full description of prepaid expenses other than prepaid rent. |
| 7 | IaaS (Infrastructure as a Service) and PaaS (Platform as a Service) firms are classified under the SaaS sector. |
| 8 | e.g., R&D credits in tech sectors and deferred revenue in retail industry. |
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Table 1.
Sample selection procedure.
| Table Sample Selection | Obs. | No. of Firms |
|---|---|---|
| 5731 | 501 |
| (187) | (29) |
| 5544 | 472 |
| (499) | (6) |
| (14) | (1) |
| 5031 | 465 | |
| (27) | |
| (156) | |
| (163) | |
| (346) | (63) | |
| 4685 | 402 |
| (14) | (2) |
| 4671 | 400 |
| 4271 | 372 |
Table 2.
Statistical summary of deferred tax items.
| Variable | Obs. * | Mean | ΔMean | StD. Dev. | Min. | 25% | 75% | Max. |
|---|---|---|---|---|---|---|---|---|
| Net DTA | 4671 | 0.0592 | __ | 0.08 | 0.000 | 0.021 | 0.069 | 0.6053 |
| Net DTL | 4671 | −0.0631 | __ | 0.0772 | −0.4557 | −0.0827 | −0.0142 | −0.000 |
| BTDTEMP | 4685 | −0.004 | __ | 0.071 | −1.467 | −0.014 | 0.013 | 0.881 |
| BTDPERM | 4513 | 0.014 | __ | 0.066 | −0.686 | −0.007 | 0.037 | 0.232 |
| BTDTOTAL | 4669 | 0.011 | __ | 0.067 | −0.307 | −0.009 | 0.039 | 0.195 |
| ΔDTL | 4271 | −0.002 | __ | 0.028 | −0.137 | −0.005 | 0.004 | 0.105 |
| ΔDTA | 4271 | −0.000 | __ | 0.025 | −0.106 | −0.006 | 0.004 | 0.119 |
| Asset Retirement Obligations | 330 | 0.0084 | −0.0000 | 0.0077 | 0.00002 | 0.0011 | 0.016 | 0.0209 |
| Accounts Receivable | 1163 | 0.0043 | −0.0006 | 0.0047 | 0.00002 | 0.0013 | 0.0049 | 0.0194 |
| Operating Lease | 776 | 0.0226 | 0.0001 | 0.0305 | 0.0003 | 0.0029 | 0.0298 | 0.1047 |
| Financing Lease | 162 | 0.0041 | 0.0001 | 0.0025 | 0.00002 | 0.0021 | 0.007 | 0.007 |
| Issuance cost | 62 | 0.00001 | 0.0000 | 0.000 | 0.000 | 0.00001 | 0.00001 | 0.00001 |
| Environmental Obligations | 654 | 0.007 | −0.0033 | 0.0068 | 0.00002 | 0.0022 | 0.0102 | 0.0234 |
| Other DTA | 1095 | 0.0047 | 0.0000 | 0.0049 | 0.000 | 0.0011 | 0.0069 | 0.0183 |
| Investments in Partnerships | 240 | 0.0016 | 0.0000 | 0.0015 | 0.000 | 0.0003 | 0.0029 | 0.0041 |
| Uncertain Tax Positions | 287 | 0.0041 | 0.0000 | 0.0036 | 0.000 | 0.0009 | 0.0077 | 0.0102 |
| Employee Obligation | 1787 | 0.0103 | −0.0001 | 0.0116 | 0.000 | 0.0025 | 0.0137 | 0.05 |
| Warranty Reserves | 446 | 0.0064 | 0.0000 | 0.0052 | 0.000 | 0.0019 | 0.01 | 0.0166 |
| Rebates | 454 | 0.0041 | 0.0000 | 0.0035 | 0.000 | 0.0008 | 0.0069 | 0.01 |
| Capital expenditure | 667 | 0.0119 | 0.0002 | 0.0204 | 0.00002 | 0.0011 | 0.0105 | 0.0729 |
| Capitalized R&D | 472 | 0.011 | 0.0003 | 0.0133 | 0.000 | 0.0011 | 0.016 | 0.0416 |
| Capitalized cost | 63 | 0.0012 | 0.0000 | 0.0003 | 0.0003 | 0.0013 | 0.0014 | 0.0014 |
| Goodwill Impairments | 255 | 0.0075 | 0.0003 | 0.0059 | 0.000 | 0.0016 | 0.0138 | 0.0159 |
| Advanced Payment | 182 | 0.0038 | 0.0000 | 0.0032 | 0.000 | 0.0006 | 0.0081 | 0.0081 |
| Accrued Liabilities | 2255 | 0.0091 | −0.0003 | 0.0088 | 0.000 | 0.0031 | 0.0116 | 0.0405 |
| Deferred Revenue | 1048 | 0.0069 | 0.0001 | 0.0076 | 0.00003 | 0.0016 | 0.0089 | 0.03 |
| Allowance for Doubtful Accounts | 670 | 0.0029 | 0.0000 | 0.0029 | 0.00001 | 0.0007 | 0.0039 | 0.0098 |
| Currency Swaps and Derivatives | 325 | 0.0023 | 0.0000 | 0.002 | 0.000 | 0.0005 | 0.0037 | 0.0063 |
| Contingency Liability | 55 | 0.01 | 0.0000 | 0.013 | 0.000 | 0.0015 | 0.0099 | 0.0391 |
| Translation Adjustment | 178 | 0.0021 | 0.0000 | 0.0016 | 0.0001 | 0.00058 | 0.0042 | 0.0042 |
| Pension Compensation | 1046 | 0.015 | −0.0002 | 0.0202 | −0.0299 | 0.0039 | 0.0186 | 0.144 |
| Other Compensation deferred | 2600 | 0.008 | −0.0017 | 0.0095 | 0.000 | 0.0022 | 0.0099 | 0.0502 |
| Other Receivables | 240 | 0.0027 | 0.0000 | 0.002 | 0.000 | 0.001 | 0.0049 | 0.0059 |
| Tax credits | 818 | 0.0114 | −0.0008 | 0.0178 | 0.000 | 0.001 | 0.0098 | 0.0627 |
| Capital Loss (Carryforward) | 895 | 0.0195 | 0.0001 | 0.0366 | 0.000 | 0.0017 | 0.0157 | 0.1474 |
| NOL (Carryforward) | 2890 | 0.0243 | 0.0001 | 0.0499 | 0.000 | 0.0028 | 0.0218 | 0.309 |
| Tax credit (Carryforward) | 1251 | 0.0122 | 0.0002 | 0.0142 | 0.000 | 0.0019 | 0.017 | 0.0561 |
| R&D credit (Carryforward) | 190 | 0.0143 | 0.0001 | 0.0099 | 0.0006 | 0.0042 | 0.0269 | 0.0269 |
| Miscellaneous costs | 1977 | 0.0051 | −0.0006 | 0.0079 | 0.000 | 0.0009 | 0.0056 | 0.0419 |
| Valuation Allowance | 2892 | −0.0318 | −0.0001 | 0.1393 | −2.9336 | −0.0171 | −0.0012 | 0.1069 |
| Inventory | 339 | −0.0083 | 0.0000 | 0.0083 | −0.0246 | −0.0123 | −0.0024 | −0.000 |
| Prepaid Rent and Insurance | 328 | −0.0037 | 0.0001 | 0.0029 | −0.008 | −0.0056 | −0.0005 | −0.000 |
| Acquisition cost | 784 | −0.027 | 0.0001 | 0.0295 | −0.1275 | −0.0385 | −0.0057 | −0.000 |
| Depreciation and Amortization | 717 | −0.065 | 0.0003 | 0.919 | −0.312 | −0.021 | 0 | 0.151 |
| Global Low-Taxed income | 39 | −0.0734 | 0.0000 | 0.0772 | −0.2117 | −0.1467 | −0.0085 | 0.0217 |
| Deferred Foreign earnings | 842 | −0.0157 | 0.0001 | 0.0545 | −0.386 | −0.0084 | −0.0007 | 0.0116 |
| Subsidiaries Investments | 623 | −0.018 | −0.0002 | 0.0306 | −0.101 | −0.0129 | −0.0013 | −0.000 |
| Right of Use Assets | 726 | −0.0162 | −0.0010 | 0.021 | −0.0727 | −0.0192 | −0.0028 | −0.000 |
| Other Prepaid expenses | 184 | −0.0027 | 0.0000 | 0.0025 | −0.0072 | −0.0043 | −0.000 | −0.000 |
| Valuation Adjustments | 311 | −0.0043 | 0.0000 | 0.004 | −0.0116 | −0.0079 | −0.0007 | −0.000 |
| Deferred Capital Gains | 585 | −0.006 | 0.0000 | 0.0083 | −0.028 | −0.0074 | −0.0008 | −0.000 |
| Pension Obligations | 170 | −0.0157 | −0.0001 | 0.0545 | −0.3857 | −0.0084 | −0.0007 | 0.0116 |
| Benefits and Stock Compensation | 223 | 0.004 | 0.0000 | 0.008 | 0 | 0 | 0.006 | 0.050 |
| Partnership income | 157 | −0.0032 | −0.0002 | 0.0022 | −0.0057 | −0.0057 | −0.001 | −0.000 |
| Tax Adjustments | 47 | −0.0095 | 0.0000 | 0.0353 | −0.2055 | −0.0037 | −0.0017 | −0.0007 |
| Discounts | 76 | −0.0009 | 0.0000 | 0.0002 | −0.0011 | −0.0011 | −0.0011 | −0.0002 |
| In process R&D Spending | 173 | −0.0041 | 0.0000 | 0.0027 | −0.0073 | −0.0072 | −0.0011 | −0.0001 |
| Other DTL | 2261 | −0.0028 | −0.00004 | 0.0043 | −0.0209 | −0.0034 | −0.0005 | 0.0044 |
* Table 2 reports statistical data for none merged observations. I report four decimal digits unless the fourth digit is zero.
Table 3.
Statistics summary for Compustat Variables.
| Variable | Obs. * | Mean | Std. Dev. | Min. | 25% | 75% | Max. |
|---|---|---|---|---|---|---|---|
| Total Revenue | 4669 | 21,214 | 44,460 | 0 | 3162 | 18,870 | 569,962 |
| Total Assets | 4671 | 62,724 | 230,483 | 100 | 4829 | 39,344 | 3,743,567 |
| Cash balance | 4555 | 2989 | 9406 | 0 | 267 | 2407 | 261,036 |
| Pretax Income | 4279 | 1879 | 5204 | (23,119) | 177 | 1704 | 104,821 |
| Retained Earnings | 4643 | 9665 | 28,435 | (33,028) | 175 | 8951 | 402,089 |
| Total Liability | 4665 | 49,372 | 207,262 | 0 | 2502 | 25,380 | 3,449,440 |
| Total Inventory | 4358 | 3427 | 23,118 | 0 | 8 | 1725 | 503,428 |
| Total Income Taxes | 4669 | 614 | 1920 | (34,831) | 42 | 574 | 31,051 |
| Income Taxes (Deferred) | 4685 | (44) | 1167 | (35,561) | (48) | 51 | 24,877 |
| Deferred Taxes and Inv. Tax credit | 4685 | 1259 | 3599 | −13 | 11 | 768 | 40,530 |
| Net Deferred Tax Asset (Liability) | 4685 | (452) | 4290 | (34,813) | (487) | 152 | 55,322 |
| Deferred Tax Asset | 4685 | 1584 | 3959 | 0 | 143 | 1369 | 58,573 |
| Deferred Tax Liability | 4685 | 2059 | 4766 | 0 | 129 | 1821 | 56,002 |
| Deferred Taxes (Foreign) | 3695 | (28) | 338 | (10,979) | (14) | 0 | 4362 |
| Deferred Taxes (Federal) | 3695 | (29) | 1185 | (33,819) | (27) | 37 | 24,902 |
| R&D | 4685 | 669 | 2397 | 0 | 0 | 335 | 56,052 |
| SG&A | 4685 | 3332 | 8442 | 0 | 184 | 2765 | 172,537 |
| CAPX | 4685 | 1058 | 2969 | 0 | 56 | 785 | 61,053 |
* Table 3 reports statistical data for none merged observations.
Table 4.
Pearson–Spearman correlations matrix.
| Panel A—Pearson (Top)–Spearman (Bottom) Correlations (Asset and Investment-Related Category) | |||||||||||||
| CAPX | RNDamo | GOODWILL | Foreign Credit | RND Credit | IPRND | D&A | CAPLOSS | NOL | ACQUI. | ARO | LEASEO | ROU | |
| CAPX | 1 | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | −0.16 *** (0.00) | n.s. | n.s. | n.s. |
| RNDamo | 0.17 *** (0.00) | 1 | n.s. | n.s. | 0.23 *** (0.00) | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. |
| Impairment | 0.16 *** (0.00) | 0.14 *** (0.00) | 1 | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | −0.06 *** (0.00) | n.s. | n.s. | n.s. |
| Foreign credits | n.s. | n.s. | 0.06 *** (0.00) | 1 | n.s. | n.s. | −0.40 *** (0.00) | n.s. | n.s. | −0.27 *** (0.00) | n.s. | n.s. | n.s. |
| RNDcredit | n.s. | 0.12 *** (0.00) | n.s. | n.s. | 1 | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | −0.06 *** (0.00) |
| IPRND | −0.11 *** (0.00) | 0.05 * (0.01) | n.s. | n.s. | −0.07 *** (0.00) | 1 | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. |
| D&A | 0.10 *** (0.00) | 0.09 *** (0.00) | n.s. | n.s. | 0.09 *** (0.00) | n.s. | 1 | n.s. | n.s. | 0.60 *** (0.00) | n.s. | n.s. | n.s. |
| CAPLOSS | 0.09 *** (0.00) | 0.09 *** (0.00) | 0.08 *** (0.00) | 0.05 * (0.03) | n.s. | −0.09 *** (0.00) | −0.05 ** (0.03) | 1 | n.s. | n.s. | n.s. | n.s. | n.s. |
| NOL | 0.08 *** (0.00) | 0.06 ** (0.01) | n.s. | n.s. | 0.12 *** (0.00) | n.s. | n.s. | −0.16 *** (0.00) | 1 | n.s. | n.s. | n.s. | n.s. |
| ACQUI. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | 0.10 *** (0.00) | −0.07 *** (0.00) | −0.06 ** (0.01) | 1 | n.s. | n.s. | n.s. |
| ARO | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | −0,15 *** (0.00) | n.s. | n.s. | 0.08 *** (0.00) | 1 | n.s. | n.s. |
| LEASEO | 0.05 * (0.07) | 0.05 ** (0.04) | 0.09 *** (0.00) | n.s. | 0.06 *** (0.00) | n.s. | −0.69 *** (0.00) | n.s. | 0.06 ** (0.01) | −0.05 * (0.09) | n.s. | 1 | n.s. |
| ROU | −0.08 *** (0.00) | −0.08 *** (0.00) | −0.07 *** (0.00) | n.s. | −0.09 *** (0.00) | 0.11 *** (0.00) | n.s. | −0.05 * (0.05) | n.s. | 0.08 *** (0.00) | n.s. | −0.69 *** (0.00) | 1 |
| Panel B—Pearson (Top)–Spearman (Bottom) Correlations (Accrual related Category) | |||||||||||||
| AR | Payroll | WARR. | Advance | Accruals | Def. Rev. | ADA | REC. | Pension | Stock Comp | VA | Prepaid Rent | Prepaid Exp. | |
| AR | 1 | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | −0.93 *** (0.00) | n.s. |
| Payroll | 0.09 *** (0.00) | 1 | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | −0.49 *** (0.00) | n.s. | n.s. |
| WARR. | 0.14 *** (0.00) | 0.16 *** (0.00) | 1 | 0.06 *** (0.00) | n.s. | n.s. | n.s. | n.s. | 0.15 *** (0.00) | n.s. | n.s. | n.s. | −0.06 *** (0.00) |
| Advance | 0.03 ** (0.04) | n.s. | 0.07 *** (0.00) | 1 | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. |
| Accruals | 0.10 *** (0.00) | −0.09 *** (0.00) | −0.12 *** (0.00) | −0.03 * (0.06) | 1 | n.s. | n.s. | n.s. | n.s. | 0.98 *** (0.00) | n.s. | n.s. | n.s. |
| Deferred Revenue | 0.03 * (0.07) | 0.09 *** (0.00) | 0.04 ** (0.03) | 0.05 *** (0.00) | 0.06 *** (0.00) | 1 | n.s. | n.s. | 0.07 *** (0.00) | n.s. | n.s. | n.s. | n.s. |
| ADA | 0.05 *** (0.00) | 0.03 ** (0.02) | 0.07 *** (0.00) | n.s. | −0.12 *** (0.00) | n.s. | 1 | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. |
| Other Receivables | 0.19 *** (0.00) | 0.05 *** (0.00) | 0.11 *** (0.00) | −0.03 * (0.07) | n.s. | 0.04 *** (0.00) | −0.05 *** (0.00) | 1 | n.s. | n.s. | n.s. | n.s. | n.s. |
| Pension | 0.07 *** (0.00) | 0.09 *** (0.00) | 0.05 *** (0.00) | 0.05 *** (0.00) | 0.03 ** (0.02) | −0.07 *** (0.00) | −0.04 *** (0.00) | −0.03 * (0.05) | 1 | n.s. | n.s. | n.s. | n.s. |
| Stock Comp | 0.06 *** (0.00) | −0.14 *** (0.00) | n.s. | −0.05 *** (0.00) | n.s. | 0.09 *** (0.00) | n.s. | n.s. | 0.04 *** (0.00) | 1 | n.s. | n.s. | n.s. |
| VA | −0.10 *** (0.00) | 0.03 * (0.06) | −0.06 *** (0.00) | −0.05 *** (0.00) | −0.15 *** (0.00) | −0.07 *** (0.00) | n.s. | n.s. | −0.12 *** (0.00) | −0.09 *** (0.00) | 1 | n.s. | n.s. |
| Prepaid Rent | n.s. | n.s. | n.s. | −0.05 *** (0.00) | −0.04 *** (0.00) | −0.03 ** (0.03) | −0.08 *** (0.00) | n.s. | n.s. | −0.10 *** (0.00) | 0.04 *** (0.00) | 1 | n.s. |
| Prepaid Expense | 0.03 ** (0.02) | −0.03 ** (0.01) | −0.06 *** (0.00) | n.s. | −0.05 *** (0.00) | −0.08 *** (0.00) | 0.06 *** (0.00) | n.s. | n.s. | n.s. | −0.06 *** (0.00) | 0.05 *** (0.00) | 1 |
| Panel C—Pearson (Top)–Spearman (Bottom) Correlations (Financial and Tax Adjustment Category) | |||||||||||||
| SWAPS | TRANSL. | DERIV. | ADJUST | DEF. GAINS | PARTNER INVEST | UTB | REBATES | DISCOUNT | |||||
| SWAPS | 1 | n.s. | −0.32 *** (0.00) | n.s. | n.s. | 0.69 *** (0.00) | n.s. | n.s. | n.s. | ||||
| TRANSL. | n.s. | 1 | −0.25 *** (0.00) | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | ||||
| DERIVATIVE | −0.07 *** (0.00) | −0.056 | 1 | n.s. | n.s. | −0.36 *** (0.00) | n.s. | n.s. | n.s. | ||||
| ADJUSTMENT | −0.11 *** (0.00) | −0.05 *** (0.00) | n.s. | 1 | n.s. | n.s. | n.s. | n.s. | n.s. | ||||
| DEF. GAINS | n.s. | −0.06 *** (0.00) | 0.06 *** (0.00) | 0.08 *** (0.00) | 1 | n.s. | n.s. | n.s. | n.s. | ||||
| PARTNER INVESTMENT | 0.15 *** (0.00) | 0.05 * (0.04) | −0.13 *** (0.00) | n.s. | −0.17 *** (0.00) | 1 | n.s. | n.s. | n.s. | ||||
| UTB | 0.06 *** (0.00) | −0.06 ** (0.00) | n.s. | n.s. | −0.05 * (0.01) | n.s. | 1 | 0.09 *** (0.00) | n.s. | ||||
| REBATES | 0.08 *** (0.00) | n.s. | −0.08 *** (0.00) | n.s. | n.s. | 0.05 * (0.06) | 0.13 *** (0.00) | 1 | n.s. | ||||
| DISCOUNT | −0.08 *** (0.00) | n.s. | n.s. | 0.09 *** (0.00) | n.s. | n.s. | n.s. | −0.05 *** (0.00) | 1 | ||||
Only significant correlations are reported, n.s. stands for no significance. *** stands for 1% significance level (p < 0.01), ** stands for 5% significance level (p < 0.05), * stands for 10% significance level (p < 0.1).
Table 5.
Summary and reasoning of correlated deferred items.
| Correlated Items | Reason for Correlation | Table Evidence |
|---|---|---|
| AR-ADA | ADA is a contra-account to accounts receivable (ASC 310), adjusting for uncollectible amounts, with tax deductions under IRC § 166 deferred until write-offs. | Spearman ADA-AR = 0.005 ***. AR with LNBTD (29.6 ***), ADA with LPBTD (92.1 ***), indicating correlated BTD impacts from credit sales and provisioning. |
| LEASEO-ROU | Both stem from lease accounting (ASC 842), with operating leases generating ROU assets and straight-line expenses, while tax deductions under IRC § 162 are cash-based. | Spearman ROU-LEASE = −0.69 ***. LEASEOP with LLNBTD (10.7 ***), ROU with LLNBTD (−16.9 ***), suggesting a correlated negative BTD effect. |
| LEASEF-ROU | Financing leases (capital leases under ASC 842) also involve ROU assets, with amortization and interest expenses, while IRC § 162 allows deductions based on payments. | LEASEF with LLNBTD (39.9 ***), ROU’s negative LLNBTD (−16.9 ***), indicating correlated BTD impacts. |
| Payroll, Benefits, Stock Compensation, and Pension | All costs are employee-related (ASC 710, 718, 715), with GAAP accruing expenses, and IRC § 404 deferring deductions until payment. | Spearman PAYROLL-PENSION = −0.09 ***. Spearman PAYROLL-BENEFITS= −0.14 ***. BENEFITS with LPBTD (−9.6 *), PENSION with LNBTD (21.4 ***), suggesting correlated BTD |
| CAPX R&D Amortization, R&D credits | All involve asset capitalization and depreciation/amortization (ASC 360, 730, 720-15), with tax deductions under IRC § 167/174/263 often accelerated. | CAPX with CAPLOSS (Spearman = 0.09 ***). CAPX with RND (Spearman = 0.17 ***), RND with LNBTD (21.02 ***), COSTCAP with LNBTD (55.425 **), indicating correlated negative BTDs. |
| REVENUEDEF-ADVANCE | Both represent prepayments (ASC 606), recognized as revenue over time, while IRC § 451 taxes upon receipt. | ADVANCE with DEF. REV. no correlation found. DEF. REV. with LNBTD (30.4 ***), ADVANCE with LLNBTD (36.3 **), suggesting correlated negative BTDs. |
| NOL-CAPLOSS | All relate to loss carryforwards and DTA adjustments (ASC 740), with tax benefits under IRC § 172/1212 deferred. | NOLCF with LNBTD (−0.244 *), CAPLOSSCF with LNBTD (4.310 ***), VA with SNBTD (3.2 ***), indicating correlated negative BTDs. |
| CREDITs | All are tax credit carryforwards (ASC 740), with deferred benefits under IRC § 41/39. | CREDITRND with LLNBTD (27.860 ***), CREDITFED with LLNBTD (10.7 ***), CREDITFOREIGN with LNBTD (22.3 ***), suggesting negative BTDs. |
| GOODWILL-IPRND-RND | Both are intangible assets (ASC 350, 805), with impairments or costs affecting BI, while IRC § 197 amortizes them. | GOODWILL with LNBTD (18.3 ***), IPRND with LNBTD (51.49 **), indicating correlated negative BTDs from impairment timing. |
| SWAPS-DERIVATIVES | All involve foreign currency or derivative adjustments (ASC 815, 830), with varying tax recognition under IRC § 1256. | SWAPS with DERIVATIVES (Pearson = −0.32 **). SWAPS with LNBTD (41.6 **), TRANSLATION with LPBTD (−60.4 ***), suggesting correlated BTD effects from fair value changes. |
*** stands for 1% significance level (p < 0.01), ** stands for 5% significance level (p < 0.05), * stands for 10% significance level (p < 0.1).
Table 6.
OLS coefficient estimates (BTD regression on deferred tax items).
| DTL | DTA | ΔDTL | ΔDTA | BTDTEMP | BTDPERM | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Variable | Coeff | T-Stat | Coeff | T-Stat | Coeff | T-Stat | Coeff | T-Stat | Coeff | T-Stat | Coeff | T-Stat |
| ARO | −1.33 *** | −3.81 | 0.816 | 0.56 | −1.978 ** | −2.36 | 0.390 *** | 4.52 | −1.828 *** | −7.59 | −0.805 *** | −3.7 |
| AR | 1.99 *** | 10.01 | 3.462 *** | 4.43 | 7.225 *** | 12.97 | −0.322 *** | −5.61 | 0.093 | 0.72 | 0.163 | 1.32 |
| LEASEOP | −0.10 | −1.46 | 6.279 *** | 22 | −0.015 | −0.09 | −0.061 *** | −3.71 | −0.224 *** | −4.83 | −0.020 | −0.48 |
| LEASEF | −0.59 | −1.28 | 4.347 ** | 2.24 | −0.243 | −0.23 | 0.297 *** | 2.76 | −0.490 | −1.53 | −0.289 | −1 |
| ISSUE | −1.58 | −0.61 | −4.482 | −0.41 | 4.924 | 0.81 | 1.186 ** | 1.89 | −5.432 *** | −3.06 | 3.656 ** | 2.28 |
| OBLIGATION | −0.10 | −0.29 | 0.728 | 0.5 | −1.125 | −1.32 | −0.083 | −0.94 | −0.426 * | −1.8 | −0.278 | −1.3 |
| DTAO | −0.19 | −0.89 | 0.803 | 0.91 | 0.117 | 0.24 | 0.125 *** | 2.54 | 0.139 | 0.96 | −0.103 | −0.79 |
| PARTNERINV | −0.73 ** | −2.27 | 0.101 | 0.07 | 9.238 *** | 10.71 | 0.000 | 0.00 | 0.066 | 0.3 | −0.092 | −0.46 |
| UTP | −0.19 | −0.32 | 0.211 | 0.08 | −1.377 | −0.98 | 0.215 | 1.48 | −0.336 | −0.82 | 0.055 | 0.15 |
| PAYROLL | −0.71 *** | −56.79 | 1.363 *** | 25.87 | −0.520 *** | −11.62 | 0.000 | 0.03 | 0.007 | 0.8 | −0.016 ** | −2 |
| WARRANTY | 2.05 *** | 4.1 | 1.329 | 0.63 | 0.122 | 0.11 | −0.122 | −1.02 | 0.092 | 0.27 | 1.382 *** | 4.45 |
| REBATE | 0.43 | 0.63 | 1.750 | 0.61 | 0.287 | 0.18 | 0.175 | 1.05 | 0.396 | 0.84 | −0.334 | −0.79 |
| CAPX | 0.56 *** | 5.29 | 0.845 * | 1.90 | −0.869 *** | −3.58 | 0.007 | 0.28 | −0.083 | −1.14 | −0.044 | −0.67 |
| RND | 0.35 *** | 2.59 | 0.868 | 1.52 | −0.134 | −0.41 | 0.161 *** | 4.74 | −0.111 | −1.19 | 0.038 | 0.45 |
| COSTCAP | −3.16 *** | −2.87 | 0.921 | 0.20 | 0.060 | 0.02 | −0.360 | −1.28 | −0.529 | −0.7 | 1.665 *** | 2.43 |
| GOODWILL | −0.21 * | −1.72 | −0.119 | −0.23 | −0.644 ** | −2.26 | 0.076 *** | 2.59 | −0.340 *** | −4 | 0.245 *** | 3.19 |
| ADVANCE | 0.18 | 0.29 | 2.339 | 0.93 | −1.696 | −1.25 | 0.416 *** | 2.98 | −0.791 ** | −1.91 | 0.316 | 0.85 |
| ACCRUEEXP | 0.01 *** | 2.71 | −2.107 *** | −219 | −0.004 | −0.77 | 0.002 *** | 3.10 | 0.005 *** | 2.92 | −0.002 | −1.67 |
| REVENUEDEF | 0.22 | 0.78 | 1.110 | 0.95 | −0.280 | −0.43 | 0.144 ** | 2.15 | −0.546 *** | −2.83 | 0.285 | 1.64 |
| ADA | 0.59 | 0.75 | −0.948 | −0.29 | 0.891 | 0.47 | 0.542 *** | 2.75 | 0.454 | 0.79 | 0.180 | 0.35 |
| SWAPS | 10.52 *** | 19.40 | 5.783 *** | 2.56 | 3.576 *** | 2.82 | 0.658 *** | 5.03 | 0.455 | 1.23 | −0.774 ** | −2.3 |
| CONTINGENCY | −0.55 | −0.55 | 0.134 | 0.03 | 2.352 | 1.06 | 0.142 | 0.62 | −0.071 | −0.1 | 0.176 | 0.29 |
| TRANSLATION | −5.19 *** | −37.68 | 0.419 | 0.73 | −3.361 *** | −8.92 | −0.028 | −0.72 | −0.059 | −0.63 | 0.013 | 0.16 |
| RECEIVABLEO | −0.59 ** | −1.99 | 3.474 *** | 2.80 | −0.479 | −0.72 | 0.114 | 1.66 | 0.720 *** | 3.54 | −0.220 | −1.2 |
| PENSION | 0.41 *** | 3.05 | 1.044 * | 1.86 | −0.564 * | −1.82 | 0.074 *** | 2.33 | 0.150 | 1.62 | 0.149 * | 1.79 |
| BENEFITS | 0.00 | 1.38 | −0.606 *** | −188.5 | 0.000 | −0.22 | 0.001 *** | 7.17 | 0.002 *** | 2.91 | −0.002 *** | −3.7 |
| CREDITFED | 2.66 *** | 44.86 | 1.757 *** | 6.88 | 2.359 *** | 11.30 | 0.035 | 1.65 | −0.112 *** | −2.68 | 0.031 | 0.83 |
| CAPLOSSCF | 0.01 *** | 2.66 | 0.889 *** | 47.73 | −0.008 | −0.78 | 0.004 *** | 3.49 | 0.004 | 1.31 | −0.012 *** | −4.44 |
| NOLCF | 0.00 | 1.30 | 1.120 *** | 164.15 | 0.001 | 0.16 | 0.001 *** | 3.51 | 0.005 *** | 4.81 | 0.001 | 0.75 |
| CREDITFOREIGN | −0.13 | −0.90 | 1.429 ** | 2.46 | −0.299 | −0.93 | 0.014 | 0.42 | −0.275 *** | −2.88 | 0.310 *** | 3.58 |
| CREDITRND | 0.66 *** | 2.68 | 4.180 *** | 4.07 | −4.151 *** | −7.08 | 0.008 | 0.13 | −0.196 | −1.16 | −0.306 ** | −1.99 |
| MISCL | −4.42 *** | −38.98 | 6.794 *** | 14.08 | 1.788 *** | 5.77 | 0.051 | 1.61 | −0.056 | −0.71 | 0.125 * | 1.78 |
| VA | −0.12 *** | −4.10 | −1.41 *** | −11.180 | −0.763 *** | −10.68 | −0.005 | −0.62 | 0.047 ** | 2.33 | −0.116 *** | −6.23 |
| INVENTORY | 1.58 *** | 5.15 | 0.61 | 0.470 | −0.069 | −0.10 | 0.064 | 0.89 | 0.025 | 0.12 | −0.179 | −0.94 |
| PREPAIDRENT | 1.16 *** | 2.45 | 0.02 | 0.010 | −9.816 *** | −8.77 | 0.174 | 1.51 | 0.617 ** | 2.01 | −0.727 ** | −2.48 |
| GDWLAMO | 1.82 *** | 43.71 | 0.94 *** | 5.110 | 0.369 *** | 3.13 | 0.011 | 0.87 | 0.014 | 0.48 | −0.014 | −0.55 |
| DEPAMO | 1.30 *** | 121.79 | −0.13 *** | −2.740 | 0.201 *** | 7.38 | −0.001 | −0.41 | −0.005 | −0.67 | −0.004 | −0.53 |
| GILTI | 1.24 *** | 6.27 | −0.07 | −0.080 | 0.156 | 0.34 | −0.080 | −1.67 | −0.099 | −0.72 | 0.034 | 0.28 |
| EARNINGDEF | 0.63 *** | 10.53 | 0.36 | 1.450 | −1.067 *** | −7.83 | 0.129 *** | 9.22 | 0.028 | 0.69 | 0.144 *** | 3.84 |
| SUBSIDIARYINV | 1.95 *** | 23.86 | −0.24 | −0.720 | 1.305 *** | 6.87 | 0.075 *** | 3.85 | −0.047 | −0.84 | 0.047 | 0.92 |
| ROU | 1.34 *** | 9.56 | −5.84 *** | −9.970 | 0.363 | 1.14 | −0.387 *** | −11.76 | 0.255 *** | 2.66 | −0.291 *** | −3.35 |
| PREPAIDO | 2.59 ** | 2.21 | 1.46 | 0.300 | −1.091 | −0.41 | −0.274 | −0.99 | 0.829 | 1.02 | −1.198 | −1.64 |
| VALUATION | 2.48 *** | 8.51 | 0.04 | 0.040 | −0.167 | −0.25 | −0.094 | −1.34 | −0.242 | −1.2 | −0.049 | −0.27 |
| CAPGAINDEF | 0.16 * | 1.83 | −0.17 | −0.480 | 0.022 | 0.12 | 0.001 | 0.05 | −0.016 | −0.27 | 0.053 | 1 |
| DISCOUNT | −1.63 | −0.81 | −3.33 | −0.400 | 6.712 | 1.47 | 2.056 *** | 4.36 | 0.176 | 0.13 | −2.442 ** | −1.95 |
| IPRND | 0.71 | 0.67 | −0.21 | −0.050 | −0.630 | −0.26 | 0.292 | 1.17 | 0.349 | 0.48 | 0.527 | 0.8 |
| DTLO | 0.38 * | 1.87 | −2.16 *** | −2.440 | −5.661 *** | −11.49 | −0.103 ** | −2.02 | 0.130 | 0.92 | −0.130 | −1.02 |
| NOLO | −0.48 *** | −12.90 | 0.00 | −0.030 | 0.435 *** | 3.99 | 0.033 *** | 2.95 | −0.025 | −0.98 | 0.030 | 1.28 |
| Constant | 0.00 | 0.64 | 0.01 | 0.730 | −0.015 *** | −3.22 | −0.002 *** | −4.45 | −0.001 | −0.83 | 0.015 *** | 11.47 |
| No. of Obs. | 4685 | 4685 | 4271 | 4271 | 4671 | 4671 | ||||||
| R-square | R2 = 100% | R2 = 100% | R2 = 32.3% | R2 = 12.06% | R2 = 5% | R2 = 7.5% | ||||||
*** stands for 1% significance level (p < 0.01), ** stands for 5% significance level (p < 0.05), * stands for 10% significance level (p < 0.1).
Table 7.
Logistic regression association between BTD and deferred tax items (LOGIT Model).
| Variables | Prediction | LNBTD | LPBTD | SNBTD | SPBTD | LLNBTD | LLPBTD | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| BTD Sign | Coeff | T-Stat | Coeff | T-Stat | Coeff | T-Stat | Coeff | T-Stat | Coeff | T-Stat | Coeff | T-Stat | |
| ARO | LNBTD | 7.319 | 0.87 | −6.726 | −0.72 | −25.560 * | −1.71 | −3.764 | −0.33 | 35.06 *** | 3.53 | 2.599 | 0.15 |
| AR | LNBTD | 29.626 *** | 4.44 | −1.758 | −0.24 | −11.843 | −1.06 | −14.908 | −1.23 | 5.474 | 0.47 | −7.857 | −0.55 |
| LEASEOP | LNBTD | 1.246 | 0.49 | −3.732 | −1.34 | −0.961 | −0.28 | 1.378 | 0.48 | 10.743 *** | 4.41 | −27.594 | −1.45 |
| LEASEF | LNBTD | 4.789 | 0.41 | 14.528 | 1.38 | −74.59 * | −1.85 | −0.323 | −0.02 | 39.958 *** | 3.14 | 6.370 | 0.3 |
| ISSUE | None | −80.349 | −0.86 | 15.531 | 0.23 | −328 | −1.37 | −67.492 | −0.77 | 25.337 | 0.3 | −4103.760 | −0.74 |
| OBLIGATION | None | 15.213 * | 1.85 | −9.044 | −0.90 | 4.04 | 0.45 | −1.774 | −0.18 | 1.852 | 0.13 | −41.034 | −1.69 |
| DTAO | None | 19.873 *** | 3.40 | 8.211 * | 1.83 | −15.71 * | −1.86 | −23.823 ** | −2.17 | 0.454 | 0.06 | 9.031 * | 1.77 |
| PARTNERINV | None | 6.823 | 0.44 | 29.592 | 1.62 | 21.98 | 1.2 | −20.362 | −0.45 | −206.9 | −1.71 | 34.268 | 0.47 |
| UTP | None | 25.452 ** | 1.94 | −14.821 | −0.81 | −36.299 | −1.55 | 2.089 | 0.13 | 10.835 | 0.47 | −118.16 ** | −2.06 |
| PAYROLL | LNBTD | 0.048 | 0.04 | −5.219 *** | −3.66 | 5.812 *** | 2.87 | −8.560 | −1.46 | −3.993 ** | −2.11 | −26.904 ** | −2.34 |
| WARRANTY | None | 22.378 * | 1.86 | 3.013 | 0.24 | −3.513 | −0.24 | 6.941 | 0.45 | 14.981 | 0.74 | −5.359 | −0.18 |
| REBATE | NBTD | 38.633 *** | 2.56 | −24.104 | −1.25 | 42.356 ** | 2.37 | −5.662 | −0.25 | 15.887 | 0.63 | 46.012 | 1.13 |
| CAPX | LNBTD | 13.694 *** | 6.10 | 9.541 *** | 4.30 | −9.954 ** | −2.39 | −16.298 ** | −2.48 | 8.627 *** | 2.72 | −11.701 | −1.34 |
| RND | LNBTD | 21.022 *** | 6.09 | 10.606 *** | 3.58 | −13.081 *** | −2.76 | −29.217 *** | −2.82 | 12.040 *** | 3.11 | 14.52 *** | 4.12 |
| COSTCAP | LNBTD | 55.425 ** | 2.38 | 16.557 | 0.58 | −0.023 | 0 | −112.637 | −1.4 | 21.995 | 0.57 | 64.076 | 1.68 |
| GOODWILL | LNBTD | 18.300 *** | 3.54 | −7.400 | −1.09 | −2.983 | −0.71 | −7.961 | −1.42 | 24.413 *** | 4.23 | −3.187 | −0.28 |
| ADVANCE | None | 11.397 | 0.81 | −22.737 | −0.89 | −52.248 | −1.51 | −104.33 * | −1.86 | 36.3 ** | 2.36 | −101.97 | −1.21 |
| ACCRUEEXP | LNBTD | 3.387 *** | 3.31 | −0.317 | −0.06 | −15.260 ** | −2.5 | −12.623 ** | −1.99 | 0.715 | 0.24 | −4.84 | −0.46 |
| REVENUEDEF | LNBTD | 30.416 *** | 4.88 | −3.787 | −0.52 | 3.486 | 0.46 | −35.547 *** | −2.97 | 33.69 *** | 3.92 | −5.25 | −0.38 |
| ADA | None | −29.480 | −1.31 | 92.084 *** | 4.98 | −74.821 *** | −2.66 | −22.282 | −0.91 | −118.107 ** | −2.07 | 162.97 *** | 7.01 |
| SWAPS | None | 41.607 ** | 2.26 | −29.987 | −1.00 | −2.449 | −0.09 | 45.9 | 1.28 | 44.107 | 0.72 | −84.83 | −0.84 |
| CONTINGENCY | None | −52.850 | −0.87 | −44.200 | −1.31 | 17.913 | 0.79 | −4.247 | −0.12 | −62.700 | −0.4 | −223.84 | −0.8 |
| TRANSLATION | None | 1.906 | 0.23 | −60.4 *** | −3.62 | −3.755 | −0.25 | −61.134 | −1.02 | 64.751 ** | 2.46 | 33.39 | 1.37 |
| RECEIVABLEO | LNBTD | 31.545 *** | 2.94 | −5.314 | −0.53 | 15.603 ** | 2.04 | −76.954 | −1.41 | −6.454 | −0.29 | −0.18 | −0.02 |
| PENSION | LNBTD | 21.373 *** | 6.91 | 13.477 *** | 4.22 | −11.140 ** | −2.35 | −4.082 | −0.83 | −6.776 | −1.03 | −3.322 | −0.47 |
| BENEFITS | NBTD | 0.343 | 0.43 | −9.616 * | −1.93 | −10.567 ** | −2 | −2.382 | −0.44 | −23.22 ** | −2.01 | −70.08 *** | −3.99 |
| CREDITFED | None | −0.917 | −0.35 | 0.785 | 0.28 | −3.159 | −0.92 | −2.792 | −0.81 | 10.712 *** | 3.18 | −10.010 | −1.17 |
| CAPLOSSCF | None | 4.310 *** | 3.56 | 0.581 | 0.40 | −0.945 | −0.5 | −2.211 | −0.84 | 5.284 ** | 2.28 | −0.498 | −0.2 |
| NOLCF | None | −0.244 * | −1.82 | −0.004 | −0.01 | −1.146 | −0.96 | −2.663 | −1.64 | −0.617 * | −1.7 | 0.131 | 0.06 |
| CREDITFOREIGN | NBTD | 22.317 *** | 6.99 | −4.782 | −1.36 | 2.915 | 0.77 | −16.404 *** | −2.71 | 17.934 *** | 3.83 | −15.326 * | −1.76 |
| CREDITRND | NBTD | 18.868 ** | 2.44 | −1.974 | −0.25 | −1.810 | −0.26 | −3.031 | −0.4 | 27.860 *** | 2.72 | 3.272 | 0.25 |
| MISCL | None | 7.196 | 1.42 | −42.6 *** | −5.17 | 10.255 | 1.34 | −19.992 | −1.61 | −3.967 | −0.29 | −10.119 | −0.45 |
| VA | None | −5.013 *** | −4.96 | −0.532 | −0.55 | 3.278 *** | 3.2 | 2.890 ** | 2.32 | −3.724 *** | −2.63 | 0.710 | 0.36 |
| INVENTORY | LPBTD | −71.43 *** | −3.15 | −19.199 ** | −1.93 | −30.730 ** | −2.07 | 10.334 | 1.42 | 0.993 | 0.06 | −542.634 ** | −2.02 |
| PREPAIDRENT | LPBTD | 4.968 | 0.46 | 9.306 | 0.87 | −32.435 | −1.36 | −10.666 | −0.59 | −49.956 | −0.92 | −13.207 | −0.45 |
| GDWLAMO | LPBTD | −2.282 | −1.51 | −12.9 *** | −5.87 | 0.515 | 0.3 | 1.272 | 0.7 | 3.866 * | 1.91 | −28.66 *** | −4.35 |
| DEPAMO | LPBTD | 0.205 | 0.36 | 4.91 *** | 6.84 | −2.361 *** | −2.54 | −5.427 *** | −3.74 | −1.66 * | −1.88 | −8.316 *** | −2.91 |
| GILTI | None | 9.914 ** | 2.11 | 2.761 | 0.64 | 5.849 | 1.36 | −11.58 | −0.65 | −10.581 | −0.69 | 0.000 | 0 |
| EARNINGDEF | PBTD | −14.87 *** | −4.01 | −12.834 *** | −2.85 | 4.877 *** | 2.81 | 3.004 | 1.6 | 0.572 | 0.17 | −28.362 * | −1.83 |
| SUBSIDIARYINV | PBTD | −3.024 | −1.41 | 11.354 *** | 4.99 | −12.904 ** | −2.37 | −9.104 | −1.61 | 2.083 | 0.53 | −7.196 | −0.97 |
| ROU | None | −5.072 | −1.16 | −3.812 | −0.79 | −2.019 | −0.39 | −1.844 | −0.41 | −16.911 *** | −2.52 | 22.433 | 1.03 |
| PREPAIDO | LPBTD | −14.269 | −0.46 | 52.23 ** | 1.97 | −43.932 | −1.07 | 13.631 | 0.41 | −40.844 | −0.59 | −496.479 | −1.64 |
| VALUATION | None | 38.839 *** | 4.81 | 2.893 | 0.41 | −28.781 | −1.46 | 7.564 | 1.12 | 0.966 | 0.07 | −10.444 | −0.6 |
| CAPGAINDEF | None | −0.531 | −0.23 | −4.023 | −0.98 | 1.635 | 0.82 | 1.436 | 0.74 | 1.189 | 0.35 | −72.882 ** | −2.13 |
| DISCOUNT | None | −183.850 | −1.29 | −344.96 ** | −2.46 | 46.51 | 0.86 | −44.72 | −0.45 | −5.416 | −0.08 | −588 *** | −2.37 |
| IPRND | LNBTD | 51.495 ** | 2.25 | −23.556 | −0.73 | 21.948 | 0.88 | 47.782 ** | 2.01 | 28.638 | 0.79 | −25.629 | −0.44 |
| DTLO | None | 12.024 * | 1.69 | 21.854 ** | 2.23 | −4.671 | −0.49 | 19.478 | 1.49 | −10.202 | −0.58 | −43.014 | −1.24 |
| NOLO | None | 0.363 | 0.25 | 5.682 ** | 2.26 | 0.233 | 0.07 | −5.728 | −1.02 | 10.744 * | 1.91 | 10.467 | 0.58 |
| Constant | None | −1.819 *** | −32.36 | −1.35 *** | −24.13 | −1.455 *** | −23.4 | −1.294 *** | −18.67 | −3.095 *** | −30.51 | −1.934 *** | −17.95 |
| No. of Obs. | 4671 | 4671 | 4671 | 4671 | 4671 | 4671 | |||||||
| R-square | R2 = 10.3% | R2 = 5.6% | R2 = 3.6% | R2 = 5.6% | R2 = 8.2% | R2 = 13.4% | |||||||
*** stands for 1% significance level (p < 0.01), ** stands for 5% significance level (p < 0.05), * stands for 10% significance level (p < 0.1).
Table 8.
Industry regression results for deferred tax components (OLS model).
| Variable | COMPUTER | OIL | CONSTRUCT | PHARMA | RETAIL | MEDICAL | BEVERAGE | AIRLINE | SAAS | ELECTR. | FASHION | HEAVY |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ARO | −2.88 *** (−3.07) | 14.52 *** (26.15) | 2.60 *** (5.76) | n.s. | n.s. | n.s. | 1.04 *** (4.34) | 1.60 *** (5.00) | n.s. | −2.50 ** (−2.53) | −0.65 * (−1.69) | 1.16 ** (2.07) |
| AR | −1.53 *** (−2.85) | −1.27 *** (−4.02) | 3.39 *** (13.16) | n.s. | 1.74 *** (3.19) | n.s. | n.s. | n.s. | n.s. | 0.60 (1.06) | 0.48 ** (2.19) | n.s. |
| LEASEOP | n.s.# | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | −0.16 (−0.87) | n.s. | n.s. |
| LEASEF | n.s. | n.s. | 9.05 *** (15.19) | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | −1.88 (−1.44) | n.s. | n.s. |
| ISSUE | 36.45 *** (5.28) | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | −0.40 ** (−2.34) | 46.17 *** (9.35) | 42.52 *** (5.53) | n.s. | −3.46 ** (−2.40) |
| OBLIGATION | n.s. | n.s. | n.s. | −1.89 *** (−3.01) | n.s. | 2.64 *** (4.33) | n.s. | n.s. | n.s. | 0.61 (0.63) | −0.72 ** (−1.90) | 5.89 *** (6.62) |
| DTAO | n.s. | n.s. | n.s. | 1.95 *** (5.08) | −3.39 *** (−5.90) | n.s. | n.s. | −0.35 *** (−2.84) | n.s. | −2.03 *** (−3.43) | n.s. | n.s. |
| PARTNERINV | n.s. | 1.08 *** (2.37) | n.s. | n.s. | n.s. | −1.52 *** (−2.98) | 2.06 *** (10.43) | n.s. | n.s. | 0.39 (0.48) | n.s. | n.s. |
| UTP | n.s. | n.s. | n.s. | 4.82 *** (4.40) | n.s. | 4.99 *** (4.70) | n.s. | n.s. | n.s. | 0.07 (0.04) | n.s. | 8.31 *** (8.66) |
| PAYROLL | n.s. | −0.05 *** (−2.39) | n.s. | 0.07 *** (3.11) | −0.07 ** (−1.98) | n.s. | −0.02 ** (−1.95) | n.s. | n.s. | −0.04 (−1.22) | n.s. | n.s. |
| WARRANTY | −6.64 *** (−4.96) | −4.29 *** (−5.43) | n.s. | n.s. | −2.54 * (−1.86) | 1.97 ** (2.22) | n.s. | 8.50 *** (18.68) | −1.87 ** (−1.95) | −3.72 *** (−2.64) | 4.56 *** (8.29) | 6.55 *** (8.02) |
| REBATE | −7.99 *** (−4.36) | −3.87 *** (−3.58) | n.s. | n.s. | 8.18 *** (4.38) | −3.17 *** (−2.61) | 1.23 *** (2.63) | n.s. | −5.55 *** (−4.24) | −8.11 *** (−4.20) | 3.08 *** (4.09) | 2.08 * (1.89) |
| CAPX | 0.482 * (1.70) | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | 1.57 *** (16.31) | n.s. | −0.84 *** (−2.82) | n.s. | n.s. |
| RND | 1.11 *** (3.02) | n.s. | n.s. | 0.69 *** (2.79) | n.s. | n.s. | 0.30 *** (3.19) | −2.99 *** (−22.37) | n.s. | −1.01 *** (−2.65) | n.s. | n.s. |
| COSTCAP | 23.80 *** (8.06) | n.s. | n.s. | 11.04 *** (5.47) | n.s. | n.s. | n.s. | n.s. | n.s. | −3.05 (−0.98) | 2.58 ** (2.13) | n.s. |
| GOODWILL | 0.89 *** (2.67) | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | 1.16 *** (2.84) | n.s. | 0.28 (0.81) | n.s. | n.s. |
| ADVANCE | n.s. | n.s. | n.s. | 11.89 *** (10.83) | n.s. | n.s. | n.s. | n.s. | n.s. | 5.92 *** (3.50) | n.s. | −1.71 * (−1.76) |
| ACCRUEEXP | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | 0.00 (0.66) | n.s. | n.s. |
| REVENUEDEF | n.s. | −1.36 *** (−3.08) | −0.97 *** (−2.66) | n.s. | −1.55 ** (−2.03) | n.s. | 2.22 *** (11.58) | 2.91 *** (11.42) | 4.05 *** (7.55) | 10.46 *** (13.27) | 7.32 *** (7.80) | −1.00 ** (−2.28) |
| ADA | n.s. | −3.03 ** (−2.43) | −2.54 *** (−2.50) | −4.15 *** (−2.88) | −9.33 *** (−4.34) | n.s. | n.s. | −1.18 *** (−7.78) | −4.67 *** (−3.10) | 6.57 *** (2.96) | 5.90 *** (6.81) | 10.41 *** (8.24) |
| SWAPS | −4.30 *** (−3.01) | −1.93 ** (−2.28) | −1.67 ** (−2.43) | 5.12 *** (5.24) | n.s. | n.s. | 3.53 *** (9.61) | n.s. | n.s. | −2.59 * (−1.72) | n.s. | n.s. |
| CONTINGENCY | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | −4.57 (−1.64) | n.s. | −2.73 * (−1.72) |
| TRANSLATION | n.s. | −0.38 * (−1.70) | n.s. | 0.79 *** (3.09) | n.s. | n.s. | n.s. | −0.37 *** (−2.88) | n.s. | −0.22 (−0.56) | n.s. | n.s. |
| RECEIVABLEO | n.s. | n.s. | n.s. | 1.05 ** (1.94) | n.s. | n.s. | n.s. | n.s. | n.s. | −0.35 (−0.41) | n.s. | n.s. |
| PENSION | −0.66 * (−1.85) | −0.57 *** (−2.68) | n.s. | −0.49 ** (−2.01) | −1.38 *** (−3.79) | −0.72 *** (−3.03) | −0.22 *** (−2.45) | 2.02 *** (16.57) | n.s. | −0.46 (−1.21) | −0.56 *** (−3.82) | −0.60 *** (−2.73) |
| BENEFITS | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | 0.00 (0.01) | n.s. | n.s. |
| CREDITFED | 0.34 ** (2.10) | 0.69 *** (7.42) | −0.60 *** (−8.00) | −0.24 ** (−2.28) | −0.87 *** (−5.44) | n.s. | n.s. | n.s. | n.s. | 0.02 (0.15) | n.s. | n.s. |
| CAPLOSSCF | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | 0.00 (0.40) | n.s. | n.s. |
| NOLCF | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. |
| CREDITFOREIGN | 2.91 *** (7.82) | 0.43 ** (1.94) | −0.44 *** (−2.46) | n.s. | −1.02 *** (−2.69) | −0.54 ** (−2.21) | −0.20 ** (−2.12) | −0.80 *** (−2.84) | n.s. | 2.29 *** (6.38) | −0.57 *** (−3.72) | n.s. |
| CREDITRND | n.s. | 0.66 * (1.69) | −0.59 * (−1.87) | 2.48 *** (5.48) | −1.31 ** (−1.94) | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. |
| MISCL | 0.68 ** (2.20) | n.s. | −0.84 *** (−5.64) | 0.47 ** (2.21) | −1.58 *** (−5.00) | 0.82 *** (3.99) | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. |
| VA | 0.15 * (1.88) | −0.10 ** (−2.20) | 0.09 ** (2.34) | 0.10 * (1.89) | n.s. | n.s. | n.s. | n.s. | −0.11 ** (−2.01) | 0.22 *** (2.58) | n.s. | n.s. |
| INVENTORY | −2.27 *** (−2.77) | n.s. | n.s. | 1.56 *** (2.78) | 8.78 *** (10.50) | −1.03 ** (−1.90) | n.s. | −0.70 ** (−2.52) | −1.38 *** (−2.36) | −2.45 *** (−3.06) | n.s. | n.s. |
| PREPAIDRENT | n.s. | n.s. | −3.65 *** (−6.00) | n.s. | 5.63 *** (4.36) | −2.07 *** (−2.47) | n.s. | n.s. | n.s. | −3.59 *** (−2.70) | −1.21 ** (−2.34) | n.s. |
| GDWLAMO | n.s. | −0.42 *** (−6.03) | n.s. | 0.49 *** (6.21) | −0.25 ** (−2.07) | n.s. | n.s. | −0.13 *** (−3.20) | 0.15 * (1.81) | 0.09 (0.33) | n.s. | n.s. |
| DEPAMO | −0.09 *** (−3.07) | 0.05 *** (2.73) | 0.04 *** (2.73) | −0.07 *** (−3.60) | 0.15 *** (4.98) | −0.05 *** (−2.48) | n.s. | 0.04 *** (3.50) | n.s. | −0.09 *** (−2.83) | n.s. | n.s. |
| GILTI | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | 5.37 *** (9.62) | n.s. | n.s. |
| EARNINGDEF | 0.78 *** (4.93) | −0.17 * (−1.86) | 0.53 *** (6.86) | n.s. | n.s. | n.s. | n.s. | −0.13 ** (−2.70) | n.s. | 0.84 *** (5.04) | n.s. | n.s. |
| SUBSIDIARYINV | n.s. | n.s. | n.s. | n.s. | −0.60 *** (−2.80) | −0.25 * (−1.78) | −0.18 *** (−3.40) | −0.19 ** (−2.59) | n.s. | −0.41 * (−1.84) | n.s. | n.s. |
| ROU | n.s. | n.s. | −0.52 *** (−2.88) | −0.68 *** (−2.68) | 5.04 *** (13.21) | n.s. | n.s. | n.s. | n.s. | −1.36 *** (−3.45) | 0.45 *** (2.93) | n.s. |
| PREPAIDO | 5.53 * (1.76) | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | −1.91 ** (−1.79) | 20.51 *** (9.13) | 7.50 ** (2.27) | n.s. | −6.55 *** (−3.48) |
| VALUATION | 1.63 ** (2.08) | −1.75 *** (−3.79) | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. | n.s. |
| CAPGAINDEF | n.s. | n.s. | n.s. | 0.28 * (1.81) | n.s. | 0.38 *** (2.55) | n.s. | n.s. | n.s. | −0.48 ** (−2.00) | n.s. | n.s. |
| DISCOUNT | −10.61 ** (−1.97) | n.s. | n.s. | 11.98 *** (3.25) | n.s. | n.s. | n.s. | n.s. | n.s. | 12.57 ** (2.21) | n.s. | n.s. |
| IPRND | 52.03 *** (18.44) | n.s. | n.s. | −3.66 * (−1.90) | −4.97 * (−1.73) | n.s. | n.s. | n.s. | 14.55 *** (7.21) | n.s. | n.s. | n.s. |
| DTLO | −1.53 *** (−2.70) | 0.64 ** (1.92) | n.s. | −1.72 *** (−4.46) | 1.02 * (1.78) | 1.58 *** (4.24) | 0.49 *** (3.40) | −0.49 ** (−2.57) | −0.87 ** (−2.14) | −1.46 *** (−2.47) | n.s. | n.s. |
| NOLO | 0.25 *** (2.80) | 0.13 *** (2.50) | n.s. | n.s. | n.s. | −0.29 *** (−4.99) | n.s. | n.s. | n.s. | 0.17 * (1.86) | n.s. | n.s. |
| Constant | 0.08 *** (15.85) | 0.04 *** (13.01) | 0.02 *** (8.24) | 0.03 *** (9.08) | 0.1 *** (18.44) | 0.04 *** (10.82) | n.s. | n.s. | 0.042 *** (11.02) | 0.09 *** (16.19) | 0.01 *** (16.99) | 0.02 *** (5.90) |
| No. of Obs. | 4671 | 4671 | 4671 | 4671 | 4671 | 4671 | 4671 | 4671 | 4671 | 4671 | 4671 | 4671 |
| R-square | R2 = 13% | R2 = 17% | R2 = 10.7% | R2 = 9.5% | R2 = 11% | R2 = 3.5% | R2 = 36% | R2 = 22% | R2 = 8% | R2 = 10% | R2 = 4% | R2 = 7% |
Coefficients and t-statistics are reported for significant results only (*** p < 0.01, ** p < 0.05, * p < 0.1), with non-significant (n.s.) results omitted.
Table 9.
Relation between industry sectors and large BTDs (LOGIT model).
| LNBTD | LPBTD | LLNBTD | LLPBTD | SNBTD | SPBTD | BTD | |
|---|---|---|---|---|---|---|---|
| INDUSTRY | Coefficient (z-Value) | Coefficient (z-Value) | Coefficient (z-Value) | Coefficient (z-Value) | Coefficient (z-Value) | Coefficient (z-Value) | Coefficient (t-Value) |
| MEDICAL | 0.405 *** (3.70) | 0.135 (1.19) | 0.317 * (1.83) | −0.054 *** (−2.82) | 0.525 *** (5.06) | −0.359 *** (−3.17) | −0.028 *** (−4.70) |
| ELECTRONIC | 0.277 *** (3.87) | −0.295 *** (−3.59) | 0.310 *** (2.72) | −0.100 *** (−8.34) | 0.310 *** (4.66) | −0.156 ** (−2.29) | −0.008 ** (−2.31) |
| COMPUTER | 0.244 *** (3.28) | −0.319 *** (−3.72) | 0.659 *** (6.42) | −0.096 *** (−7.73) | 0.377 * (2.46) | −0.376 *** (−5.10) | −0.024 *** (−6.16) |
| FOOD | 0.887 *** (8.07) | 0.258 *** (2.22) | 0.088 (0.42) | −0.115 *** (−5.75) | 0.249 * (2.26) | 0.279 *** (2.57) | −0.006 (−1.03) |
| RESTAURANT | 0.599 *** (5.87) | −0.127 (−1.08) | 0.412 * (2.06) | −0.077 *** (−2.67) | 0.247 * (2.46) | −0.288 *** (−2.71) | −0.004 (−0.67) |
| CHEMICAL | −1.374 *** (−3.61) | 1.031 *** (7.42) | 0.086 (0.33) | −0.076 *** (−3.01) | 0.099 (0.70) | −0.140 (−0.97) | 0.005 (0.70) |
| HOUSEHOLD | −0.038 (−0.18) | 1.004 *** (5.64) | −0.160 (−0.39) | 0 (0) | 0.958 *** (5.23) | −0.577 *** (−2.78) | −0.010 (−1.32) |
| MINE | 0.087 (0.83) | 2.285 *** (6.28) | 0.484 * (1.98) | −0.121 *** (−2.66) | −0.917 *** (−2.52) | 0.462 * (1.86) | 0.003 (0.22) |
| OIL | 0.327 *** (2.84) | 0.379 *** (3.35) | 0.892 *** (6.38) | −0.081 *** (−4.11) | 0.029 (0.26) | −0.496 *** (−4.06) | −0.022 *** (−3.66) |
| PHARMA | −0.702 *** (−4.51) | 0.181 * (1.69) | 0.644 *** (4.60) | −0.121 *** (−6.14) | 0.200 * (2.01) | −0.331 *** (−3.13) | −0.023 *** (−3.86) |
| CONSTRUCT | −0.116 (−0.71) | 0.049 (0.32) | 0.403 * (1.90) | −0.066 *** (−2.68) | −0.198 (−1.09) | −0.169 (−1.19) | −0.009 (−1.21) |
| BEVERAGE | 0.300 (0.74) | 0.973 *** (2.56) | 0.575 (1.08) | −0.121 * (−1.74) | −0.255 (−1.03) | 0.225 (1.06) | −0.002 (−1.10) |
| AIRLINES | 0.360 (1.39) | 0.618 * (1.91) | 0.547 (1.55) | 0.058 (1.27) | −0.787 *** (−2.77) | −0.331 (−1.21) | 0.000 (0.16) |
| TRANSPORT | 0.322 * (1.67) | −0.546 ** (−2.09) | 0.355 (1.23) | −0.081 *** (−2.46) | 0.204 (1.11) | −0.159 (−0.84) | −0.003 (−0.26) |
| AUTO | 0.128 (0.72) | −0.459 ** (−2.08) | 0.376 (1.48) | −0.043 (−1.47) | 0.431 *** (2.69) | −0.522 *** (−2.84) | 0.003 (0.28) |
| HEAVY | 0.134 (1.13) | 0.078 (0.63) | −0.274 (−0.96) | −0.11 *** (−5.58) | 0.382 *** (3.41) | 0.013 (0.11) | −0.008 (−1.23) |
| DISTRIBUTION | −0.441 *** (−2.58) | 0.185 (1.38) | 0.107 (0.46) | −0.121 *** (−3.59) | 0.070 (0.55) | 0.230 * (1.87) | −0.007 (−0.96) |
| CASINO | −1.027 *** (−3.92) | 0.155 (1.08) | 0.643 *** (3.54) | −0.105 *** (−4.39) | 0.469 *** (3.57) | −0.211 (−1.51) | −0.015 ** (−2.06) |
| FASHION | −0.487 ** (−2.08) | −0.533 ** (−2.27) | 0.401 (1.56) | −0.121 *** (−4.04) | 0.281 * (1.87) | −0.43 *** (−3.35) | −0.010 (−1.21) |
| RETAIL | −0.314 *** (−3.60) | 0.021 (0.27) | −0.057 (−0.41) | −0.104 *** (−8.41) | 0.131 * (1.93) | 0.196 *** (2.91) | −0.002 (−0.48) |
| HOTEL | 0.267 (1.20) | 0.061 (0.29) | 0.358 (1.24) | −0.051 (−1.46) | 0.021 (0.11) | −0.279 (−1.34) | −0.004 (−0.41) |
| SAAS | 0.059 * (2.88) | 0.002 (0.09) | 0.42 *** (4.54) | −0.014 (−0.75) | 0.028 (0.71) | 0.021 (0.56) | 0.012 ** (1.80) |
| Constant | −0.904 *** (−24.87) | −0.859 *** (−23.98) | −1.91 *** (−29.98) | 0.121 (21.13) | −0.509 *** (−15.55) | −0.359 *** (−11.40) | 0.003 * (1.81) |
| No. of Obs. | 4685 | 4685 | 4685 | 4685 | 4685 | 4685 | 4685 |
| LR Chi2 | 297 | 240 | 104.5 | 163 | 124 | 131 | __ |
| Pseudo R2 | 6% | 5% | 5.3% | 8% | 2% | 2% | R2 = 1.6% |
*** stands for 1% significance level (p < 0.01), ** stands for 5% significance level (p < 0.05), * stands for 10% significance level (p < 0.1).
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Rahiminejad, S. Determinants and Drivers of Large Negative Book-Tax Differences: Evidence from S&P 500. J. Risk Financial Manag. 2025, 18, 291. https://doi.org/10.3390/jrfm18060291
AMA Style
Rahiminejad S. Determinants and Drivers of Large Negative Book-Tax Differences: Evidence from S&P 500. Journal of Risk and Financial Management. 2025; 18(6):291. https://doi.org/10.3390/jrfm18060291
Chicago/Turabian StyleRahiminejad, Sina. 2025. "Determinants and Drivers of Large Negative Book-Tax Differences: Evidence from S&P 500" Journal of Risk and Financial Management 18, no. 6: 291. https://doi.org/10.3390/jrfm18060291
APA StyleRahiminejad, S. (2025). Determinants and Drivers of Large Negative Book-Tax Differences: Evidence from S&P 500. Journal of Risk and Financial Management, 18(6), 291. https://doi.org/10.3390/jrfm18060291
