Analysts’ Tax Questions During Earnings Conference Calls and ETR Forecasts

Abstract

This study examines analysts’ tax questions during earnings conference calls and their effective tax rate (ETR) forecasts. For firms that issue annual ETR forecasts, we find that greater analyst engagement during earnings conference calls, especially about tax topics, is positively associated with the analyst issuing an ETR forecast that deviates from manager’s ETR forecast. However, notwithstanding potential additional tax information obtained in these calls, analysts’ deviating ETR forecasts have lower forecast accuracy than analysts who reiterate managers’ ETR forecasts, even after controlling for differences in managers’ and analysts’ pre-tax forecasts. We interpret this result as suggesting analysts deviate to gain visibility, even at the cost of lower forecast accuracy. Accordingly, our results suggest that, on average, analysts’ deviation from managers’ ETR forecasts is not incrementally informative. On the contrary, managers’ ETR forecasts seem to be an unbiased estimate that investors and other stakeholders should focus on.

Keywords: Analyst earnings forecasts, Management earnings forecasts, Earnings conference calls, Analyst questions, Effective tax rates

JEL Classification: G17, M41