Accounting for deferred taxes: empirical analysis of flow-through versus normalization for the utility industry

Thesis/Dissertation · Wed Jan 01 04:00:00 EST 1986

OSTI ID:7163056

Karpik, P G

This dissertation tests whether electrical utilities using different methods of accounting for income taxes (interperiod deferral or normalization (NM) versus flow-through (FT) and/or issuing tax-sheltered dividends (TSD) have differing equity-value measures (dividend yields, risk-adjusted returns, market/book values (VB), and price/earnings (PE) ratios). Previous studies find that relative to comparable NM firms, FT utilities report higher earnings and dividend yields, and lower PE's. Do such differences have economic consequence. The methodology includes univariate tests of differences between accounting groups, and ANOVA/regression analysis of equity valuation models derived from previous research and/or the capital asset pricing model (CAPM). The empirical models relate equity values as functions of risk, growth, dividend payout, TSD and accounting method. Tests of economic substance compare results from models using reported financial variables versus converted values (estimates of operating earnings, etc., if FT and NM firms used the same method). The findings support the efficient-market hypothesis: investors ignore (adjust for) accounting differences having no economic substance (FT versus NM) and react to information (TSD) affecting cash flows.

• Research Organization: Syracuse Univ., NY (USA)
• OSTI ID: 7163056
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
290200 -- Energy Planning & Policy-- Economics & Sociology
296000* -- Energy Planning & Policy-- Electric Power
ACCOUNTING
ECONOMIC ANALYSIS
ECONOMICS
EFFICIENCY
ELECTRIC UTILITIES
INVESTMENT
MARKET
MATHEMATICAL MODELS
PRICES
PUBLIC UTILITIES
TAXES