Study On The Value Relevance Of Book-Tax Differences

Book-Tax Differences is the difference between Accounting Profit and Taxable Income. New Accounting Standards in2006and the New Tax Law in2008make the Book-Tax Differences have a profound change:Book-Tax Differences originally only based on the Income Statement but now expand to base on the Income Statement and Balance Sheet. So, whether the accounting information of the changes can be used to predict company’s earnings and assess the value of the company by investors? In addition, Book-Tax Differences reflect not only Temporary Book-Tax Differences due to Earnings Management and Tax Avoidance, but also Permanent Book-Tax Differences. if investors can use the accounting information of Book-Tax Differences in decision making,will the Temporary Book-Tax Differences and Permanent Book-Tax Differences too? These are the contents of this paper.In this paper, we will use data from the China’s Shanghai Stock Exchange listed manufacturing companies as the study sample in2008,2009,2010,and the study model is the Earnings Predict Model and Price Model, our study find that Book-Tax Differences and the future company’s earnings have a significant negative correlation; Book-Tax Differences and the Stock Price have a significant negative correlation; Temporary Book-Tax Differences and Permanent Book-Tax Differences too. This suggests that Book-Tax Differences has value relevance, it is caused both by Temporary Book-Tax Differences and Permanent Book-Tax Differences.