Analysts' pre-tax income forecasts and the tax expense anomaly

• 成果类型: Article
• 署名作者: Baik, Bok; Kim, Kyonghee; Morton, Richard; Roh, Yongoh
• 署名单位: Seoul National University (SNU); University of Missouri System; University of Missouri Columbia; State University System of Florida; Florida State University
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-016-9349-z
• 发表日期: 2016
• 页码: 559-595
• 关键词: cash flow forecasts; FUTURE EARNINGS; INFORMATION; performance; management; complexity; accuracy; RISK

摘要

This paper examines whether analysts' pre-tax income forecasts mitigate the tax expense anomaly documented by Thomas and Zhang (J Account Res 49:791-821, 2011). They find that seasonal changes in quarterly income tax expense are positively related to future returns after controlling for the earnings surprise and conclude that investors underreact to value-relevant information in tax expense. When analysts issue both earnings and pre-tax income forecasts, they implicitly provide a forecast of income tax expense. We posit that this implicit forecast helps investors recognize the persistence of current tax expense surprise for future earnings. Accordingly, we expect that mispricing of tax expense will be less severe for firms with earnings and pre-tax income forecasts. As expected, we find that the presence of pre-tax income forecasts significantly weakens the positive relation between tax expense surprise and future returns, consistent with analysts' implicit forecasts of tax expense mitigating the tax expense anomaly.