Comprehensive versus partial deferred tax liabilities and equity market values

This study investigates the value relevance of the deferred tax liability recognized using comprehensive versus partial allocation. Our research examines New Zealand firms who, prior to the introduction of International Financial Reporting Standards, were free to choose between comprehensive and partial allocation. We test the joint hypothesis that the partial, as opposed to comprehensive, deferred tax liability is relevant for equity valuation and is sufficiently reliable to be reflected in investors’ valuation assessments. Our results are consistent with this prediction.