ABSTRACT: This paper provides the first value relevance analysis of deferred tax disclosures under IFRS/IAS. The comprehensive analysis, taking into account the different deferred tax components, shows that investors generally do not consider deferred taxes to convey relevant information for assessing firm value, with the exception being large net deferred tax assets. In order to examine whether the general value irrelevance of deferred tax information may be due to lacking cash flow implications, the value relevance analysis is complemented by an analysis of deferred tax balance reversal. This supplemental analysis reveals that about 70 percent of the deferred tax balance persists over time, with increasing accounts dominating decreasing accounts over a four-year horizon, and that deferred tax assets are more reversing than deferred tax liabilities. Further, quantifications reveal that the majority of balance reversals have rather negligible cash flow implications.

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