Book-tax differences, dividend payout, and firm value

Abstract

We examine the effect of book-tax differences (BTDs) on firm value in the context of publicly traded firms in Russia. We find that BTDs are negatively related to firm value. We further find that the negative relation between BTDs and firm value is weaker with an increase in dividend payout. This finding indicates that dividend payout weakens the negative effect of BTDs on firm value. This effect is profound for the part of BTDs that is explained by discretionary accruals, which is in line with the signaling view on dividend policy. Our main findings are robust to endogeneity issues. Our study provides implications for investors, managers, regulators, and standard setters that are interested in the valuation of firms in developing and emerging markets.