Pre-Tax Income Forecasts and Tax Avoidance

70 Pages Posted: 27 Feb 2013 Last revised: 10 Sep 2013

See all articles by Bok Baik

Bok Baik

Seoul National University

Wooseok Choi

Korea University Business School

Sung Hwan Jung

University of Suwon

Richard M. Morton

Florida State University - Department of Accounting

Date Written: September 9, 2013

Abstract

When analysts issue both earnings and pre-tax income forecasts, they implicitly provide a forecast of income tax expense. We find that these pre-tax income forecasts have a negative (positive) effect on corporate tax avoidance for firms with relatively aggressive (non-aggressive) tax policy. We also find evidence that analysts providing implicit income tax expense forecasts have more accurate earnings forecasts and have a better appreciation of how tax expense affects future earnings. Overall, these results suggest that analysts’ implicit tax expense forecasts increase transparency and play an important role in deterring both overly aggressive and overly conservative corporate tax avoidance.

Keywords: Pre-tax Income Forecasts, Disaggregated Forecasts, Tax Avoidance, Analysts’ Forecasts

JEL Classification: G32, G34

Suggested Citation

Baik, Bok and Choi, Wooseok and Jung, Sung Hwan and Morton, Richard M., Pre-Tax Income Forecasts and Tax Avoidance (September 9, 2013). Available at SSRN: https://ssrn.com/abstract=2224154 or http://dx.doi.org/10.2139/ssrn.2224154

Bok Baik

Seoul National University ( email )

Seoul
Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)

Wooseok Choi

Korea University Business School ( email )

Anam-Dong Seongbuk-Gu
Seoul, 136-701
Korea
+82-2-3290-2814 (Phone)

Sung Hwan Jung

University of Suwon ( email )

Suwon-City, Gyeonggi
United States

Richard M. Morton (Contact Author)

Florida State University - Department of Accounting ( email )

Room No. 421
Tallahassee, FL 32306-8234
United States
850-644-7877 (Phone)

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