Analysts, Taxes, and the Information Environment

44 Pages Posted: 20 Aug 2014 Last revised: 25 Apr 2019

See all articles by Sangwan Kim

Sangwan Kim

University of Massachusetts Boston

Andrew Schmidt

North Carolina State University

Kelly Wentland

George Mason University - Department of Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: April 12, 2019

Abstract

This paper investigates the extent to which analysts incorporate tax-based earnings information into their earnings forecasts relative to other earnings information. We find that analysts’ mis-reaction to tax-based earnings information is distinct from their mis-reaction to other (non-tax) accounting information, on average. We then show that analysts differ in their mis-estimation of tax and other (non-tax) earnings components only when firms have weak information environments; when firms have strong information environments, analyst forecasts fully incorporate tax-based earnings information and exhibit no difference incorporating tax-based earnings information relative to other accounting information. Our evidence suggests that, on average, forecasting tax-based earnings information is more difficult for analysts relative to forecasting other accounting information. However, access to appropriate information and resources enables analysts to better process tax information. Overall, we contribute to the literature by providing a more complete understanding of the source of analyst tax-related forecast errors.

Keywords: Analysts, Taxes, Information Environments

JEL Classification: H25, M41, D82, G14

Suggested Citation

Kim, Sangwan and Schmidt, Andrew P. and Wentland, Kelly, Analysts, Taxes, and the Information Environment (April 12, 2019). Available at SSRN: https://ssrn.com/abstract=2482733 or http://dx.doi.org/10.2139/ssrn.2482733

Sangwan Kim

University of Massachusetts Boston ( email )

100 Morrissey Blvd.
Boston, MA 02125
United States

Andrew P. Schmidt (Contact Author)

North Carolina State University ( email )

Raleigh, NC 27695-8113
United States

HOME PAGE: http://https://poole.ncsu.edu/people/apschmid/

Kelly Wentland

George Mason University - Department of Accounting

Fairfax, VA
United States

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