Value Relevance of deferred taxes in brazilian public companies

Abstract

The objective of this study was to investigate the value relevance of deferred taxes of Brazilian public companies. The sample consisted of companies that are part of the Brazil Amplo index (Ibra B3) from 2010 to 2021. Through regression with panel data from the adapted model from Ohlson (1995), it was possible to verify that total deferred tax assets and deferred assets arising from temporary differences are value relevant, indicating that the market believes that these assets represent future reductions in tax payments and, consequently, positively affect the company's cash flows. However, deferred tax liabilities were statistically insignificant, not corroborating the idea that investors considered them genuine liabilities. Finally, deferred tax assets arising from tax losses were not significant, confirming that investors believe that these assets are difficult to recover due to the great uncertainty involved in their realization. In an additional analysis, a significant positive and negative relationship was found, respectively, for deferred tax assets and liabilities disclosed in the balance sheet, indicating that investors tend to rely more on information found in the body of the financial statements than in the footnotes. Among the probable reasons for these results, one can list the high complexity and high degree of uncertainty, judgment and discretion involved in the recognition and measurement of deferred taxes, and the low quality of the explanatory notes on taxes, which contrasts with the ease of access to the information disclosed in the balance sheet.