The Moderating Effect of Ownership Concentration on the Book-Tax Conformity-Earnings Persistence Relationship

There have been extensive debates of the potential costs and benefits deriving from the increased level of required book-tax conformity. We add to this debate by exploring the required book-tax conformity-earnings persistence relationship and testing the moderating effect of ownership concentration. Our sample consists of 31 countries and a total of 286,314 firm-year observations for the period of 1992-2005. We find a negative and significant relationship between book-tax conformity and earnings persistence. Furthermore, this relationship is positively and significantly strengthened with the ownership concentration moderator. Although our results show a positive direct link between ownership concentration and earnings persistence, this relationship was not shown to be significant.