Abstract

This paper decomposes analytically components of book－tax differences(BTD), suggests measurement models containing the components as independent variables, and decomposes components of tax avoidance measures. And then, this paper analyses empirically similarities and differences among tax avoidance measures calculated from the measurement models. According to analytical results, the components of BTD are accruals, taxes currently payable, and deferred tax expenses, etc, and the components of tax avoidance measures are calculated from those of BTD. According to regression results of the measurement models, accruals show the smallest explanation power and deferred tax expenses show the smallest weight, whereas taxes currently payable show the largest weight and explanation power. Correlation coefficients show that BTD and a tax avoidance measure(TM(TA)) containing only one variable of accruals, or a measure(TM(TP)) containing accruals and taxes and a measure (TM(DTE)) additionally containing deferred tax expenses are relatively similar. Regression results of the tax avoidance measures or of their components on firm－characteristic variables show similarities in signs but differences in statistical significances of the variables’ coefficients among the measures, and reveal BTD and TM(TA) is relatively low in test power. The differences are related with relative size of the coefficients estimated from regressions of the components. Finally, this paper suggests to use a measurement model containing accruals and taxes currently payable. This paper is valuable in that it decomposes the components of book－tax differences and tax avoidance measures, and then suggests expanded measurement models and finally seeks a better model than Desai and Dharmapala(2006) model based on empirical results of similarities and differences among tax avoidance measures.

Keywords

• Book－Tax Differences
• Tax Avoidance
• Component
• Accruals
• Taxes Currently Payable

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