Title: Accounting quality deferred tax and risk in the banking industry

Authors: Anestis C. Ladas; Christos I. Negkakis; Angeliki D. Samara

Addresses: Department of Accounting and Finance, University of Macedonia, Egnatias 156, 54006, Thessaloniki, Greece ' Department of Accounting and Finance, University of Macedonia, Egnatias 156, 54006, Thessaloniki, Greece ' Department of Accounting and Finance, University of Macedonia, Egnatias 156, 54006, Thessaloniki, Greece

Abstract: This study attempts to provide evidence of the relation between capital structure, stock crash-risk and deferred taxation. Using a sample of banks domiciled in Eurozone countries and stock crash risk measures that capture both medium and extreme risk, the study shows that the recording of deferred tax components leads, in some instances, related to capital structure, to future stock crash risk. Further investigation reveals that this result is incrementally driven by banks domiciled in southern Europe. Moreover, controlling for the existence of profitability based on the prescriptions of International Accounting Standard (IAS) 12 for the recording of deferred tax assets, the study shows that banks with high deferred tax assets domiciled in crisis-affected countries have lower future stock crash risk. In this respect, these results likely imply that recording deferred tax in a manner better reflecting the provisions of accounting standards may not increase the likelihood of a future stock crash. However, for banks with capital-structure problems domiciled in crisis-affected countries, high deferred tax assets lead to higher likelihood of future crash risk.

Keywords: deferred taxation; stock crash risk; capital structure.

DOI: 10.1504/IJBAAF.2017.085302

International Journal of Banking, Accounting and Finance, 2017 Vol.8 No.1, pp.1 - 19

Received: 25 Nov 2015
Accepted: 30 Aug 2016

Published online: 18 Jul 2017 *

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