The Impact of Deferred Tax on Earnings Quality: Evidence from Algerian Companies

Abstract

Abstract This paper aims to investigate the impact of deferred tax, as a technique adopted to support the economic orientation of financial statements over their legal form, on earnings quality as a required attribute to achieve the objective of financial reporting. The study used the model of Sloan (1996) through 280 firm-year observations that concern 40 Algerian companies from 2013 to 2019. Employing persistence and predictive ability as proxies for earnings quality, the results indicated that earnings of Algerian companies present a high level of persistence and a weak level of predictive ability. However, the deferred tax does impact neither the persistence of earnings nor their predictive ability. Therefore, accounting regulators in Algeria must simplify accounting for the deferred tax to encourage its application by companies and improve earnings quality.