Analyst Coverage and its Impact on Tax Aggressiveness: A Study on B3-listed Brazilian Companies
23 Pages Posted: 6 Nov 2023
Date Written: October 8, 2023
Abstract
This study investigates the relationship between tax aggressiveness and the number of financial analysts covering Brazilian companies listed on the B3 stock exchange between 2010 and 2021, with a focus on the role of information asymmetry. Specifically, the analysis examines metrics such as Book-Tax Differences (BTD) and Effective Tax Rates (ETR) to assess the extent to which companies employ aggressive tax practices. The findings indicate that an increase in the number of financial analysts covering a company is associated with a decrease in tax aggressiveness, which highlights the role of financial analyst coverage in mitigating information asymmetry between investors and company management. The study employs multiple regression analysis to support the hypothesis that an increase in analyst coverage has a negative impact on tax aggressiveness, which is consistent with the findings of previous research. The research has significant implications for regulators, financial statement preparers, and users who rely on accounting information in Brazil for decision-making. An increase in analyst coverage enhances business visibility and generates a heightened demand for transparent information from analysts, which helps to reduce information asymmetry and promote greater corporate integrity and accountability. Overall, the findings of this study underscore the importance of considering the relationship between information asymmetry and tax aggressiveness in Brazilian companies listed on the B3 stock exchange.
Keywords: Analyst coverage, tax aggressiveness, book-tax differences, effective tax rates
JEL Classification: H26, G2
Suggested Citation: Suggested Citation