This study aims to investigate whether and why the disclosure of full financial information to estimate taxable income (TI) is incrementally useful for investors’ decision making at earnings announcements. This paper shows analytically that the information content of TI beyond book income is determined by the relative informativeness of TI exceeding that of book-tax differences (BTDs), and therefore should be affected by the earnings quality of TI relative to BTDs. This study collects data on earnings announcements from Korean listed firms and employs multiple regression tests for earnings persistence, a major indicator of earnings quality, of TI and BTDs and their information content. The empirical test results show that TI is more persistent than BTDs for the entire sample in this study. Further, the investors’ reaction to TI is greater than that to BTDs, and the market response to TI controlling for BI is positive. However, the market test results are significantly observed only in the subsample group with full disclosure of financial statements, not in the samples with disclosure of aggregated earnings only. In sum, this study provides new evidence that the TI information obtained from a detailed earnings announcement is useful for investors in addition to book income.

Abstract
1. Introduction
2. Literature Review and Hypotheses
    2.1. Earnings Persistence of TI and BTDs
    2.2. Incremental Market Reaction to TI Surprise
3. Research Methods
    3.1. Measures of Main Variables
    3.2. Regression Models
    3.3. Sample and Data
4. Empirical Results
    4.1. Descriptive Statistics and Correlations
    4.2. Regression Results
5. Additional Tests
    5.1. Sensitivity Analysis
    5.2. Effect of BTD Consistency on the InformationContent of TI and BTDs
6. Conclusions
References

• Joonhyun KIM(College of Business Administration, Sangmyung University) Corresponding Author