Allen Presents The Information Content Of The Tax Return Online Today At Toronto

Eric Allen (USC) presents The Information Content Of The Tax Return (with Aydin Uysal (Senior Quantitative Portfolio Manager and Researcher, Charles Schwab)) online at Toronto today as part of its James Hausman Tax Law and Policy Workshop Series:

Turkey is the only jurisdiction in which firms with exchange traded securities are required to publicly disclose the income statement from their tax return. We show that the change in tax earnings incrementally predicts the subsequently released change in book earnings, and is positively related to abnormal returns on the tax return disclosure date. However, these results are weaker when the difference between prior-period book and tax earnings is higher. Furthermore, we show that the change in tax earnings is negatively related to abnormal returns on the book earnings announcement date, suggesting that investors overreact to the initial disclosure tax return information. Our study presents the most comprehensive test to date of the information content of the tax return, and suggests that while its disclosure provides useful information about firms’ performance, differences in the measurement systems prevent investors from fully impounding that information into prices.