The valuation of loss carryforwards (ABSTRACT)
published: 2003 | Research publication | Refereed Journals - Accounting
Zeng, T. (2003). "The valuation of loss carryforwards". Canadian Journal of Administrative Sciences, 20 (2), 166.
ABSTRACT: This paper explores the value-relevant information of one deferred tax component, that is, loss carryforwards. A tax-adjusted market valuation model, based on the Feltham-Ohlson (1995) market valuation model, shows that firm market value depends on the expected future tax payments. Under the assumption that loss carryforwards reduce a firm's future tax payments, the cross-sectional regression results show that loss carryforwards enhance firm market value, suggesting that the market expects losses will be used to reduce a firm's tax payments in future years. In addition, loss carryforwards are classified into several categories based on the restrictions on the losses (i.e., source, jurisdiction, and timing restrictions). I show that it is the loss carryforwards category with fewer restrictions that significantly enhances firm market value.
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revised Jan 18/05
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