This paper analyzes the incentive problems of the disclosure of a so-called valuation allowance of\r\ndeferred taxes. Since the disclosure of a relatively high valuation allowance indicates a negative\r\nprofit development, misguided incentives of a progressive capitalization of deferred taxes from loss\r\ncarryforwards would have to occur in order to avoid a negative signal. As a result, this would\r\nespecially increase the loss potential in times of crisis, which would probably lead to a failure of the\r\ncompany.
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