Analyst Forecast Accuracy when Deviating from Manager’s Voluntary Annual Effective Tax Rate Forecast

58 Pages Posted: 25 Oct 2018 Last revised: 9 Jul 2021

See all articles by Colin Koutney

Colin Koutney

Donald G. Costello College of Business at George Mason University

Date Written: March 2021

Abstract

Analysts regularly issue ETR forecasts that meaningfully deviate from managers’ voluntary annual effective tax rate (ETR) forecasts. I examine whether these deviations impact analyst forecast accuracy. Comparing analyst forecasts that deviate to analyst forecasts that reiterate managers’ ETR forecasts in a firm-year fixed effects regression, I find that deviating analysts issue less accurate after-tax earnings, pretax earnings, and ETR forecasts. Further, the inaccurate deviating analyst ETR forecasts appear to be mainly caused by differences about tax forecasts rather than pretax earnings forecasts. Analysts are more likely to deviate from managers’ ETR forecasts when they have less firm forecasting experience, issue forecasts later in the period, follow more industries, and issue fewer forecasts for the firm. Overall, the results suggest that analysts lack tax information to improve on managers’ voluntary ETR forecasts.

Keywords: Effective tax rates; Analyst earnings forecasts; Management earnings forecasts

JEL Classification: H25, M41

Suggested Citation

Koutney, Colin, Analyst Forecast Accuracy when Deviating from Manager’s Voluntary Annual Effective Tax Rate Forecast (March 2021). Available at SSRN: https://ssrn.com/abstract=3259579 or http://dx.doi.org/10.2139/ssrn.3259579

Colin Koutney (Contact Author)

Donald G. Costello College of Business at George Mason University ( email )

Fairfax, VA 22030
United States

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