Are Book-Tax Differences Mispriced?

The Accounting Review, forthcoming

43 Pages Posted: 5 May 2018 Last revised: 22 Aug 2022

See all articles by Bradford F. Hepfer

Bradford F. Hepfer

The University of Iowa - Department of Accounting

Date Written: August 1, 2022

Abstract

I examine whether book-tax differences (BTDs) are mispriced. I predict that BTD mispricing is the operating cash flows-to-price (CFO/P) anomaly in disguise. Using both time-series asset pricing tests and cross-sectional returns tests, I provide consistent evidence that returns to trading on BTDs are explained by CFO/P. Rather than being an independent anomaly, the findings indicate that any evidence of BTD mispricing is subsumed by the broader CFO/P anomaly. These findings stand in contrast to many studies that infer BTDs possess unique information for future earnings reflected in stock prices with a delay.

Keywords: book-tax differences; operating cash flows-to-price; mispricing; accrual anomaly; growth anomaly

JEL Classification: G12, G14, M41

Suggested Citation

Hepfer, Bradford F., Are Book-Tax Differences Mispriced? (August 1, 2022). The Accounting Review, forthcoming, Available at SSRN: https://ssrn.com/abstract=3165163 or http://dx.doi.org/10.2139/ssrn.3165163

Bradford F. Hepfer (Contact Author)

The University of Iowa - Department of Accounting ( email )

108 Pappajohn Business Building
Suite W252
Iowa City, IA 52242-1994
United States

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