BOOK-TAX DIFFERENCES, EARNINGS PERSISTENCE AND TAX PLANNING BEFORE AND AFTER THE ADOPTION OF IFRS IN BRAZIL

Abstract

The aim of this study was to provide evidence regarding the relationship between book-tax differences (BTD), persistence of earnings and accruals and tax planning in the Brazilian scenario. The sample corresponds to all industrial and commercial firms listed on the BMF&Bovespa that disclosed consolidated financial statements between 2003 and 2012, obtained from the Economática database. The sample period was chosen to straddle the year when the use of International Financial Reporting Standards (IFRS) became mandatory in Brazil (2009). This study is important because increase or decrease in the persistence of earnings is relevant for companies and the financial market as a measure of earnings quality. In this context, the study delineated the impacts of temporary large positive BTDs on the persistence of earnings through aggressive tax planning, before and after adoption of international financial reporting standards in Brazil. Based on the econometric models presented by Hanlon (2005) and modified by Blaylock et al. (2012), we observed the statistical significance of the regressions in Brazilian context. The coefficients of the variables present indications of less persistence of earnings, besides indicating that earnings became less persistent after adoption of IFRS. The results also provide statistical evidence that temporary large positive BTDs provide useful incremental information about the magnitude of accruals and that by examining accruals it is possible to predict the persistence of earnings and their components. In sum, these results can lead to new studies on the themes of BTD, earnings persistence and tax planning.