Abstract

The study investigates the relation between book-tax difference (BTD) and properties of preliminary earnings announce. Specifically, the study tests the degree of bias or ex-post adjustment of preliminary earnings announcement according to the difference in book-tax reporting. Also, the study examines whether firms under high market pressure or political costs disclose more biased information to the capital market and whether the relation of BTD to properties of preliminary earnings announcement shows cross-sectional variation. Using 3,942 firm-year samples covered from 2002 to 2010, tests of the study present following results. First, the study finds that absolute value of BTD is positively correlated with bias and ex-post adjustment of preliminary earnings announcement. Second, positive BTD shows a positive direction to bias and ex-post adjustment in managers’ preliminary earnings announcement while negative BTD is negatively related to properties (bias and ex-post adjustment) of preliminary earnings announcement. Third, firms under the high market pressure induce more biased and ex-post adjustment in managers’ preliminary earnings announcement. Findings in the study contribute to extant literature by suggesting that financial information users may interpret the properties of preliminary earnings announcement from the characteristics of book-tax interface. Also, results of the study indicates that firms with less BTD are likely to disclose more reliable preliminary earnings information to the capital market.

Keywords

• Book-Tax Difference
• Preliminary Earnings Announcement
• Bias of Preliminary Earnings Announcement
• Accuracy of Preliminary Earnings Announcement

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