The market valuation of deferred taxes

Abstract

<p>Three variants of a finite-horizon growth model are developed into regres­sion equations to infer the stock market valuation of tax deferral gains, using approximately 2000 Compustat records from the 1970-75 period. It is concluded that deferred tax credits were recognized as sources of shareholder wealth, but subjected to a discount in comparison to reported earnings and reported equity funds. The expectation of deceleration, depreciation-correction, and price regulation are discussed as potential causes for the discount, and related to the industry-by-industry and year-by-year structure of the regression estimates.</p>