Next, we look at Column E, which reports the coefficients for all 41 specific BTDs. Eleven of the 14 temporary differences relating to accrual quality are negative, (i.e., AQ BTD) which is more than would be expected by chance. Four and are (BENEFITS, MTM, PPE REV) significantly less from zero. includes book-tax differences relating to compensation, BENEFITS including stock compensation, compensated absences, and health-care costs. includes MTM BTDs arising from the use of mark-to-market for book, but not tax, purposes. includes the PPE differences between book and tax depreciation, as well as differences related to interest capitalization and asset impairments. includes differences between book and tax related to REV the timing of revenue recognition. The significant negative coefficient on is perhaps the most interesting finding. This REV would suggest that as managers use their discretion in timing revenue recognition for book purposes, it is reflected in the book-tax differences and results in lower persistence. Similarly, the finding that book-tax differences related to are associated with persistence is consistent with PPE firms using the considerable discretion that is afforded to them under GAAP to report asset impairments. The result on suggests that, as compensation expenses outpace BENEFITS compensation deductions (e.g., for accrued vacation pay or stock option expenses), earnings persistence decreases. This may relate to discretion in accelerating expenses to create a big bath or may be a mechanical relation due to the accounting for option compensation. The significant result for is a little surprising since many market adjustments are reported through other MTM comprehensive income, as opposed to net income. However, some of these adjustments are reported through net income (e.g., adjustments related to trading securities and any adjustments made using the fair value option) and thus, these results are consistent, once again, with the accrual quality story.
Next, we look at Column E, which reports the coefficients for all 41 specific BTDs. Eleven of the 14 temporary differences relating to accrual quality (i.e., AQ BTD) are negative, which is more than would be expected by chance. Four (BENEFITS, MTM, PPE and REV) are significantly less from zero. BENEFITS includes book-tax differences relating to compensation, including stock compensation, compensated absences, and health-care costs. MTM includes BTDs arising from the use of mark-to-market for book, but not tax, purposes. PPE includes the differences between book and tax depreciation, as well as differences related to interest capitalization and asset impairments. REV includes differences between book and tax related to the timing of revenue recognition. The significant negative coefficient on REV is perhaps the most interesting finding. This would suggest that as managers use their discretion in timing revenue recognition for book purposes, it is reflected in the book-tax differences and results in lower persistence. Similarly, the finding that book-tax differences related to PPE are associated with persistence is consistent with firms using the considerable discretion that is afforded to them under GAAP to report asset impairments. The result on BENEFITS suggests that, as compensation expenses outpace compensation deductions (e.g., for accrued vacation pay or stock option expenses), earnings persistence decreases. This may relate to discretion in accelerating expenses to create a big bath or may be a mechanical relation due to the accounting for option compensation. The significant result for MTM is a little surprising since many market adjustments are reported through other comprehensive income, as opposed to net income. However, some of these adjustments are reported through net income (e.g., adjustments related to trading securities and any adjustments made using the fair value option) and thus, these results are consistent, once again, with the accrual quality story.
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