New Evidence on the Determinants of the Deferred Tax Asset Valuation Allowance

Abstract

The deferred tax asset valuation allowance (DTAVA) is a qualitatively and quantitatively material account for many firms. However, our understanding of the determinants and consequences of this account is limited to early studies and small samples. In this study, we provide new evidence on the positive and negative determinants of the DTAVA. We identify the cumulative loss determinant as the most critical component and taxable income in carryback years as the most important positive evidence determinant. Lastly, we provide evidence that firms that rely more on subjective evidence than objective evidence to determine their DTAVA face greater adverse tax-related financial reporting outcomes.