The Impact of Corporate Tax Avoidance on Analyst Coverage and Forecasts

Review of Quantitative Finance and Accounting, Forthcoming (with open access)

Posted: 5 Jan 2018 Last revised: 28 Feb 2019

See all articles by Guanming He

Guanming He

Durham University

Helen Ren

University of Liverpool; University of Warwick, Warwick Business School

Richard Taffler

University of Warwick - Finance Group

Date Written: January 1, 2018

Abstract

Corporate tax avoidance is likely to be associated with a high level of earnings management and with high financial opacity in the time-series. On this basis, we hypothesize that analyst coverage is negatively associated with corporate tax avoidance. Our results confirm this conjecture, and are robust to using a firm-fixed-effects model and a quasi-natural experiment to control for potential endogeneity. Additional analysis shows that analyst coverage is negatively related to tax risk, but there is no evidence that the informativeness of, or errors in, analyst forecasts are associated with tax avoidance. Overall, our study advances understanding of the implications of corporate tax avoidance for analyst behavior.

Keywords: Tax planning ‧ Financial opacity ‧ Analyst following ‧ Earnings forecasts

JEL Classification: G24; H26; M41

Suggested Citation

He, Guanming and Ren, Mengbing and Taffler, Richard, The Impact of Corporate Tax Avoidance on Analyst Coverage and Forecasts (January 1, 2018). Review of Quantitative Finance and Accounting, Forthcoming (with open access), Available at SSRN: https://ssrn.com/abstract=3095279

Guanming He (Contact Author)

Durham University ( email )

Durham
United Kingdom

Mengbing Ren

University of Liverpool ( email )

United Kingdom

University of Warwick, Warwick Business School ( email )

West Midlands, CV4 7AL
United Kingdom

Richard Taffler

University of Warwick - Finance Group ( email )

Gibbet Hill Rd
Coventry, CV4 7AL
Great Britain
+442476524153 (Phone)
+442476523779 (Fax)

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