To Tell or Not to Tell? Corporate Tax Aggressiveness and Management Voluntary Effective Tax Rate Forecasts
Posted: 8 May 2020 Last revised: 1 Feb 2026
Date Written: January 28, 2026
Abstract
Firms issue voluntary management forecasts on effective tax rates (ETRs) to communicate their expected future tax performance to external parties. However, such explicit numeric disclosures can heighten public scrutiny of the issuing firms’ tax practices. In this study, we examine whether tax-aggressive firms are more or less likely to issue voluntary ETR forecasts. Our empirical results show a significantly negative association between firms’ tax aggressiveness and their issuance of voluntary ETR forecasts. Further, we differentiate voluntary ETR forecasts by the forecasted ETR relative to past ETRs and find that, while not willing to issue forecasts indicating a sustained or increasing level of tax aggressiveness, tax-aggressive firms tend to issue voluntary ETR forecasts that project a decreasing level of tax aggressiveness. Our cross-sectional analyses show that the association between tax aggressiveness and voluntary ETR forecast practices is stronger for firms subject to greater public attention, as reflected in greater media coverage. We also provide some evidence that tax-aggressive firms’ voluntary ETR forecasts generate negative (positive) media sentiment when the forecasts reveal more (less) aggressive future tax strategies. Collectively, our findings suggest that reputational concerns shape tax-aggressive firms’ disclosure strategies regarding voluntary ETR forecasts.
Keywords: ETR forecasts, tax aggressiveness, tax-related reputation, tax disclosure, voluntary disclosure
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