Are Book-Tax Differences Mispriced?
The Accounting Review, forthcoming
43 Pages Posted: 5 May 2018 Last revised: 22 Aug 2022
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: Suggested Citation