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|Other Titles:||The Study on Value Relevance of Loss Carryforwards in Taiwan|
Lin, Song-Horng;Wu, Jui-Yuan
Loss carryforwards;Value relevance;Investment tax credit;Integrated taxes system
|Issue Date:||2016-05-31 16:56:02 (UTC+8)|
This paper explores whether loss carryforwards can convey value-relevant information to market investors. The results show that, from the measurement perspective, deductible temporary differences and loss carryforwards are regarded as assets and thus have a significant positive impact on stock price. Secondly, from the information perspective, value-relevance of abnormal earnings is smaller for firms with tax carryforwards, indicating that tax carryforwards can create future tax savings effects but it also leads to a higher likelihood of losses in the future. Thirdly, smaller value-relevance of abnormal earnings for firms with valuation allowance indicates that valuation allowance is a useful means for earnings management, but it is perceived as an unrealized portion of deferred tax assets in the future. Fourthly, loss carryforwards are more value-relevant for firms with more loss offset restrictions. Finally, the implementation of the integrated taxes system has not significant effect on tax reduction effect of loss carryforwards, and in turn firm values. In sum, investors can “see through” the impact of investment tax credit, loss carryforwards, and valuation allowance on firm value after the 1998 Tax Reform in Taiwan; our results thus don’t provide supporting evidence on functional fixation hypothesis.
International Journal of Accounting Studies
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