How do hedge fund activists use and affect financial reporting of income taxes? Evidence from the valuation allowance for deferred tax assets

• 成果类型: Article
• 署名作者: Cowx, Mary; Glenn, Jennifer L.; Kielty, Patrick; Mcguire, Sean T.
• 署名单位: Arizona State University; Arizona State University-Tempe; University System of Ohio; Ohio State University; Texas A&M University System; Texas A&M University College Station; Mays Business School
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.13031
• 发表日期: 2025
• 页码: 1013-1044
• 关键词: information-content; SHAREHOLDER ACTIVISM; earnings management; VALUE CREATION; avoidance; forecasts; investors; analysts; improve; QUALITY

摘要

This study uses valuation allowances (VAs) for deferred tax assets to examine whether hedge fund activists (HFAs) use and affect financial reporting of income taxes. Specifically, we investigate whether HFAs target firms with VAs and whether target firms are more likely to release VAs post-intervention. We find that the existence, magnitude, and increases in VAs increase the marginal probability that HFAs will target a firm by between 12% and 24%. We also find that target firms are 4.6% more likely to release VAs following the intervention, and this effect persists for up to 2 years. Releases of VAs appear to stem from implemented tax avoidance strategies and changes in financial reporting of income taxes rather than real changes in operating performance or earnings management. Overall, HFAs appear to understand the interplay between tax planning and financial reporting of income taxes and use both to unlock value in target firms.