The Role of Temporary Differences of Book Value and Tax-Based Earnings To Explain Earnings Persistence

Annas Cahyadi


The purpose of this study is to examine how temporary differences
of book value and taxes-based earnings explain earnings persistence.
First, this study examines and showsthat temporary differences provide additional
information on earnings persistence.The study then examines two
potential causes of differencesofbook value and tax-based earnings, namely
earnings management and tax planning.This study concludes that firms suspected
of performing earnings management and having the differences in
book value and tax-based earnings, their earnings will be less persistent than
other firms. On the other hand, for firms suspected of performing tax
planning,their earnings will be more persistent. This study also examines the
more dominant factor that causes differences of earnings forfirms in Indonesia
and found that the differences are more influenced by tax planning
practices rather than earnings management.


differences inbook value and tax-based earnings; earnings persistence; earnings management; tax planning


Aljifri, K. 2007. Measurement and Motivations of Earnings Management, A Critical Perspective.

Journal of Accounting-Business & Management 14: 75-95.

Ali A. 1994. The Incremental Information Content of Earnings, Working Capital From Operation,

dan Cash Flows. Journal of Accounting Research 32: 61-74.

Atwood T. J., M. S. Drake, and L. A. Myers. 2010. Book-Tax Conformity, Earnings Persistence and

the Association Between Earnings and Future Cash Flows. Journal of Accounting & Economics

: 111-125.

Ayers C. B., K. S. Laplante, and T. S. McGuire. 2010. Credit Ratings and Taxes, The Effect of Book–

Tax Differences on Ratings Changes. Contemporary Accounting Research 27: 359–402.

Ball R.,and P. Brown. 1968. An Empirical Evaluation of Accounting Income Numbers. Journal of

Accounting Research 6: 159-178.

Beaver H. W., L. M. McAnnaly, and H. C. Stinson. 1997. The Information Content of Earnings and

Prices, A Simultaneous Equations Approach. Journal of Accounting and Economics 23: 53-81.

Blaylock B., T. Shelvin, and J. R. Wilson. 2012. Tax Avoidance, Large Positive Temporary Book-Tax

Differences, and Earnings Persistence. The Accounting Review 87: 91-120.

Dechow, P. M. 1994. Accounting Earnings and Cash Flows as Measures of Firm Performance, The

Role of Accounting Accrual. Journal of Accounting and Economics 11: 143-181.

Dechow P. M., A. S. Richardson, and G. R. Sloan. 2008. The Persistence and Pricing of the Cash

Component of Earnings. Journal of Accounting Research, 46: 537-566.

Dechow P.M., G. R. Sloan., and A. P. Sweeney. 1995. Detecting Earnings Management. The Accounting

Review 70: 193-225.

Donnelly R. 2002. Earnings Persistence, Losses and the Estimation of Earnings ResponseCoefficients.

Abacus 38: 121-133.

Donohoe P. M. and A. G. McGill. 2011. The Effects of Increased Book-Tax Difference Tax Return Disclosures

on Firm Valuation and Behavior. Journal of the American Taxation Association 33: 35-65.

Dyreng D. S., M. Hanlon, and L. E. Maydew. 2010. The Effects of Executives on Corporate Tax

Avoidance. The Accounting Review 85: 1163–1189.

Fama, E. and Jensen, M. 1983. Separation of ownership and control. Journal of Law and Economics.

(2): 301-325.

Gujarati D. N. 2009. Basic Econometric, Fourth Edition: McGraw-Hill Firms, Inc. Boston.

Hanlon M. 2005. The Persistence and Pricing of Earnings, Accrual, and Cash Flows when firms

have large book-tax differences. The Accounting Review 80: 137-167.

Hanlon M. and S. Heitzman. 2010. A Review of Tax Research. Journal ofAccountingandEconomics

: 127–178.

Heltzer W. 2009. Conservatism and Book-Tax Differences. Journal of Accounting, Auditing &

Finance 24: 469-504.

Jones, J.J. 1991. Earnings Management During Import Relief Investigations. Journal of Accounting

Research 29: 193-228.

Kothari S. P. 2001. Capital Market Research in Accounting. Journal of Accounting and Economics

: 105-231.

Koonce L., and G. M. Lipe. 2010. Earnings Trend and Performance Relative to Benchmarks: How

Consistency Influences Their Joint Use. Journal of Accounting Research Vol 48 No 4: 859-884.

Liswosky P. 2010. Seeking Shelter: Empirically Modeling Tax Shelter Using Financial Statement

Information. The Accounting Review 85: 1693-1720.

Mills F. L. 1998. Book-Tax Differences and International Revenue Service Adjustments. Journal of

Accounting Research 36: 343-356.

Penman S. M. 1992. Return on Fundamental. Journal of Accounting, Auditing, and Finance: 469-482.

Phillips J., M. Pincus, and S. Rego. 2003. Earnings Management: New Evidence Based on Deferred

Tax Expense. The Accounting Review 78: 289-316.

Schipper, K., 1989. Commentary on earnings management. Accounting Horizons 3: 91–102.

Schnader L. A. and Noga J. T. 2013. Book-Tax Differences as an Indicator of Financial Distress.

Accounting Horizons 27 (3): 469-489.

Scoot W. R. 2003. Financial Accounting Theory: Prentice Hall.

Sloan, R. G. 1996. Do Stock Prices Fully Reflect Information in Accrual and Cash Flows about Future

Earnings?. The Accounting Review 71: 289-315.

Siregar Veronica. S. and S. Utama. 2008. Type of earnings management and the effect of ownership

structure, firm size, and corporate-governance practices: Evidence from Indonesia. The

International Journal of Accounting 43: 1–27.

Tang T. and M. Firth. 2011. Can book–tax differences capture earnings management and tax

Management? Empirical evidence from China. International Journal of Accounting 46: 175-204.

Tang Y. H. T. 2008. Market Perception of the Information in Book-Tax Differences- Empirical

Evidence from China. Working Paper The Australian National University.

Wan H. 2010. How Accurateare The Discretionary Accrual Models?. International Journal of

Business and Public Administration 7: 1-10.

Weber. P. D. 2009. Do Analysts and Investors Fully Appreciate the Implications of Book-Tax

Differences for Future Earnings?. Contemporary Accounting Research 26 (4): 1175-1206.

Whittenburg E. G. and M. A. Buller. 2011. Income Tax Fundamentals. South-Western.

Xie H. 2001. The Mispricing of Abnormal Accruals. The Accounting Review 76: 357-373



  • There are currently no refbacks.


The Indonesian Journal of Accounting Research (IJAR)

Editorial Secretariat

Master of Science and Doctoral Programs
Faculty of Economics and Business, Gadjah Mada University

Jl. Nusantara, Bulaksumur Yogyakarta 55281
CP : Novita
Phone  : +62 812-2848-2829
Fax    : +62 274 524606
Email  :

Marketing and Sales Office

Ikatan Akuntan Indonesia
Graha Akuntan, Jl. Sindanglaya No.1 Menteng, Jakarta Pusat 10310
CP : Reza Fauzi
Divisi Pelayanan, Keanggotaan dan Mitra IAI.
Grha Akuntan, Jl. Sindanglaya No.1, Menteng.
Telp.021-31904232 Ext.324/321



ISSN 2086-6887 (Print)
ISSN 2655 - 1748 (online)


Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.