A study on the effects of tax expense surprise on future stock returns under IFRS and US GAAP

• Main Authors: Andrade, Sean Robert L., Baluyot, Lyndon Marcus B., Carino, Juan Mari Sebastian S., Dave, Jose Lorenzo C.
• Format: text
• Language: English
• Published: Animo Repository 2016
• Subjects: Stocks > Taxation; Price-earnings ratio; Accounting
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/9056
• Institution: De La Salle University

The researchers investigate the effects of tax expense surprise on future stock returns under two different accounting standards, namely IFRS and US GAAP, while controlling for other documented stock price anomalies. Previous studies have shown that seasonally differenced quarterly tax expense, the researchers' proxy for tax expense surprise, is positively related to future stock returns. Moreover, the difference between the two accounting standards, as documented by prior studies, allows the researchers to hypothesize that there might be a difference in the unexpected changes of tax expense on future stock returns under the two standards. They have found that, in general, most of the documented factors have an insignificant effect on future stock returns under both accounting standards. This may be due to five reasons: the effect of technology and the increased accuracy of forecasts, the diminishing applicability of earnings management on stock models, and the improvements in valuation models that place more emphasis on forward-looking rather than historical data.