Analysts, Taxes, and the Information Environment
44 Pages Posted: 20 Aug 2014 Last revised: 13 Nov 2018
Date Written: November 11, 2018
This paper investigates whether analysts incorporate tax-based earnings information into their annual earnings forecasts to a different degree than non-tax earnings information and the extent to which information environment attributes affect how analysts incorporate tax-based earnings into their earnings forecasts. We find that analyst forecasts mis-estimate tax-based earnings to a greater extent than other earnings components. Further, we find that information environment attributes moderate both the association between analyst forecast errors and tax-based earnings information and the difference in the association between analyst forecast errors and tax-based earnings information relative to the association between analyst forecast errors and non-tax earnings information. Combined, these results suggest that forecasting tax-based earnings information is more difficult for analysts relative to forecasting other accounting information. This research answers the call from Graham, Raedy, and Shackelford (2012) for more research on users of tax-based information in the financial statements.
Keywords: Analysts, Taxes, Information Environments
JEL Classification: H25, M41, D82, G14
Suggested Citation: Suggested Citation