Empirical evidence on the impact of book-tax differences on divergence of opinion among investors

Joseph Comprix, Roger C. Graham, Jared A. Moore

Research output: Contribution to journalArticlepeer-review

39 Scopus citations


It is well known that the objectives of financial accounting and tax accounting sometimes conflict, resulting in book-tax differences(BTDs). In this study we test for associations between measures of BTDs and measures of market participants' uncertainty regarding the information conveyed in financial reports. The measures of market participant uncertainty are:(1) share turnover,(2) analyst forecast dispersion, and(3) stock return variance. We find positive associations between levels and variability of total BTDs and the three measures. After disaggregating BTDs into their permanent and temporary components, we find that both are positively associated with market uncertainty, although the permanent component of BTDs is generally more strongly and consistently associated with measures of uncertainty than is the temporary component. We interpret these results, in part, as indicative of the possible effect of uncertainty contained in BTDs, especially permanent BTDs, on the precision of the information conveyed in the financial statements.

Original languageEnglish (US)
Pages (from-to)51-78
Number of pages28
JournalJournal of the American Taxation Association
Issue number1
StatePublished - 2011


  • Book-tax differences
  • Difference of opinion
  • Divergence of opinion
  • Permanent book-tax differences
  • Temporary book-tax differences

ASJC Scopus subject areas

  • Accounting
  • Finance


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